Cantaloupe Inc (CTLP) 2021 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Cantaloupe Inc.'s Third Quarter Fiscal Year 2021 Earnings Conference Call. (Operator Instructions)

I would now like to hand the conference over to your first speaker today, Alicia Nieva-Woodgate, VP of Corporate Communications and Investor Relations for Cantaloupe Inc. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to the Cantaloupe Third Quarter Fiscal 2021 Earnings Conference Call. With me on the call this afternoon are Sean Feeney, Chief Executive Officer; Wayne Jackson, Chief Financial Officer; and Anant Agrawal, Chief Revenue Officer.

Before we begin today's call, I 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 as a result 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 actual results and events to differ materially from such forward-looking statements is included with our filings with the SEC and in the press release issued earlier today.

Listeners are cautioned not to place undue reliance on any such forward-looking statements, which reflect management's view only as of the date they are made. Cantaloupe undertakes no obligation to update any forward-looking statements, whether as a result 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 a 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 these 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 now like to turn the call over to our Chief Executive Officer, Sean Feeney. Sean?

Thank you, Alicia, and thank you, everyone, for joining us today. I hope everyone is safe and well. A few days from now, we'll mark my 1-year anniversary at the company. I'm proud of my team's accomplishments over the last -- the past 12 months and look forward as we execute on our plans for innovation and growth.

Today marks the milestone of reporting as Cantaloupe for the first time. As you know, we officially changed our name in April and celebrated by ringing the closing bell at Nasdaq in person.

Now to move on to our fiscal third quarter results. Our financial results for the quarter improved sequentially. We saw the effects of the resurgence of the pandemic in January and February. But as schools, businesses and other organizations across the country began to reopen, March was significantly better. Revenue for the quarter increased 12% sequentially when compared to the second quarter of 2021 and was roughly flat when compared to the third quarter of 2020, gross margin of 30% compared to 26% in the third quarter of last year, adjusted EBITDA of $2.2 million compared to a loss of $3.9 million in the third quarter of 2020.

And importantly, we closed a $55 million PIPE transaction during the quarter with JPMorgan as the lead placement agent along with Northland and Craig-Hallum. This transaction included a combination of new and existing shareholders and further strengthens our balance sheet as well as positions us for future growth.

Operationally, we also made progress during the quarter. We renewed our largest customer agreement for 3 more years. This customer has also committed to upgrading all of their remaining active 3G ePort to 4G ePort devices. During the quarter, we saw an increase in hardware orders as we continue to focus on adding new devices as well as upgrading our customers' existing devices to 4G. And we successfully renewed our agreement with Visa. We are pleased with the outcome as it confirms our long-standing relationship and validates our position in the payments ecosystem.

I will now take some time to review our progress against the strategic initiatives we laid out at the beginning of the fiscal year. First, drive sustainable organic growth. We look to expand our customer base by deepening existing relationships and adding new customer wins. Anant will go into more detail in a few moments on our success during the quarter on both of these fronts. We also look to provide new and innovative products to our customers. This week, we announced a significant partnership with Castles Technology. It is our goal to leverage best-in-class resources in the market in order to best serve our customers. We believe this will be a fruitful relationship and look forward to great things to come.

Our announcement with Bakkt earlier today speaks to our commitment to enabling consumers to buy it with any form of digital payments they choose, whether it be debit, credit or crypto. It's the first step towards maximizing what our customers can offer. During the quarter, we announced the launch of our new e-commerce integration, along with partners Supply Wizards and Tech 2 Success. The new integration creates a seamless connection between the online ordering sites and vending management systems.

We also announced the broad launch of Seed Cashless+. This technology offers customers an updated experience with additional features at their fingertips and is part of our best-in-class Platform as a Service. It's tailored to small- and medium-sized businesses with under 400 unattended points of sale and provides enhanced insights for scheduling, pre-kitting, merchandising and real-time alerts, along with a streamlined user interface for better efficiency and ease of use. Innovation is what keeps us in the leadership position, whether that is in new ways to pay, new services with software and Seed or just on the whiteboard of what we're looking to introduce over the next few years.

Another initiative is to reinvest capital into people and culture in order to achieve excellence. We continue to enhance our team during the quarter, recently hiring Felice Schmookler as CIO, reporting to Ravi Venkatesan. She joins us from Comcast and is an innovator in strategies and technology that strengthen business operations. We are excited to welcome her onboard.

I will now turn the call over to Anant, our Chief Revenue Officer, to give you more color on the quarter's business performance. Anant?

Thanks, Sean. I will touch on 3 focus areas today. First, our Platform as a Service, this is a single platform for the unattended retail market. It's quick to implement. It's easy to integrate. It's flexible to operate. It gives our customers real-time insight into their business operations. As a result, it provides high ROI to our customers.

We have observed a 25% to 35% increase in revenue at our customers' machines where ePort digital payments are used. Also, customers have reported a 30% to 40% OpEx reduction after implementation of our Seed software solutions. What's great is that this technology provides us with a compelling land-and-expand strategy that deepens our existing relationships by leveraging our complete Platform as a Service and provides our customers many points of entry onto our platform based on their immediate business needs.

During the quarter, we had many such upgrade sales. One example of this is with GlobalConnect, a provider of vending, micro markets and office coffee services through its affiliate operator network. We have entered into a strategic agreement to facilitate the conversion of several of their affiliates onto Seed over the coming years. CRH Catering, which is one of the largest vending companies in the Northeast, has upgraded to 4G and is fully deployed on Seed. And several of our Pepsi bottler clients across the country have upgraded to 4G as well and are deployed on Seed.

We also added a number of new customers of all sizes during the quarter, including a Pepsi bottler in the Southeast who will be fully deploying our full platform across our operations. As well as Texas Star Refreshments, an independent operator in Texas, who will be deploying both ePort digital payments and Seed software. And as Sean mentioned, we are excited about the launch of Seed Cashless+ during the quarter. This product is designed with the SMB vendor in mind, and we are pleased with the early market traction we are seeing.

The second area to highlight is our efforts to penetrate the broader unattended retail market outside of traditional vending. We expanded business with additional cashless devices at National Entertainment Network or NEN and Creating Timeless Memories or CTM, 2 of the largest unattended amusement operators in the U.S. And we've also expanded our business with additional cashless at CSC ServiceWorks, the largest operator of air vac machines and laundry in the U.S.

Lastly, I want to talk about the exciting shift to digital payments we are witnessing in our space. Cashless transactions continue to accelerate within our customer base. As of the end of April, cashless transaction is made up of 67% of sales volume at our customers' machines compared to just 59% a year ago, just before the pandemic hit. We are well positioned to help retailers as they increasingly need to provide digital and frictionless shopping experiences to their customers.

With that, I'd like to turn it over to Wayne to review our third quarter results in full detail. Wayne?

Thanks, Anant. Good afternoon, everyone. Revenue for the third quarter of FY '21 totaled $42.8 million, relatively flat to a predominantly pre-COVID Q3 FY '20 and a 12% increase sequentially. During the quarter, active devices increased 3% from the prior year and was relatively flat compared to the second quarter of FY '21.

License and transaction revenue totaled $34.7 million for the third quarter, a 1% decrease year-over-year and a sequential increase of 4%. Even as the number of active devices were flat from Q2 to Q3 of this year, we experienced a very positive increase in transaction revenue in the latter part of the third quarter. Equipment sales for the current quarter of $8.1 million increased 59% sequentially as we gained momentum on converting our customers to 4G as well as continued to grow our new customer count.

Equipment revenue for Q3 FY '21 was down 1% compared to the prior year third quarter, which included the shipment of devices from a significant new customer contract entered into during FY '20. Total gross margin for the quarter was 30% compared with total margin of 26% for the prior year third quarter and 32% in the second quarter of FY '21. License and transaction margin improved to 41% in the third quarter of this fiscal year, up from 36% in Q3 of last year as license revenue was slightly higher in the current quarter than in the prior year.

Equipment margin for Q3 FY '21 was negative 19% compared to negative 21% in the prior year. During this quarter, the company recorded a $1.3 million out-of-period adjustment related to equipment cost for revenue that we recognized in prior years. Excluding the out-of-period adjustment, equipment margin would have been negative 3% for this quarter. As a reminder, the negative margin last year was driven by equipment discounts related to the large customer contract mentioned earlier.

Operating expenses in the third quarter totaled $14.7 million, a 30% decrease over the prior year, driven by lower SG&A expenses during the current quarter as well as no charges in the current year related to investigations, proxy solicitations and restatement expenses, which totaled $4.2 million in Q3 of last year. SG&A expenses in Q3 FY '21 totaled $13.7 million, a 14% decrease year-over-year.

During the quarter, we added $2.8 million increase in stock compensation expense, offset by a $4.3 million decrease in legal contingency reserves and other accruals as well as $1.1 million related to lower spend in the current quarter versus the prior year for employee compensation and travel and entertainment expenses. Operating loss for the third quarter was $2 million compared to a loss of $10.2 million in the third quarter of the prior year. Net loss applicable to common shareholders for the third quarter was $2.2 million or a loss of $0.03 per basic share compared to $9.6 million or a loss of $0.15 per basic share in the prior year period.

Relating to our balance sheet and liquidity. We exited the quarter with cash and cash equivalents of $88.6 million. With our continued focus on cash flow and the net proceeds of $52.4 million from the private placement, we're in a very strong position to invest in our future growth initiatives. Finally, we are reiterating our guidance on FY '21. We expect revenue to be in the range between $163 million and $171 million. Our net loss applicable to common shares is expected to be between $21 million and $17 million. And we expect adjusted EBITDA to be in the range of $1 million to $4 million.

I will now turn the call over to Sean for closing remarks. Sean?

Thanks, Wayne. To wrap up, we are pleased with the quarter and our momentum heading into the last few months of our fiscal year and incredibly excited about the future of Cantaloupe. This new chapter of the company's life will help us drive the industry forward, tapping new opportunities that create value for our customers and other stakeholders. Propelled by the pandemic, retail has seen a significant shift in shopper expectation for an increasingly self-serve, safe and secure buying experience.

We are a technology and payments company that gives our customers scale and flexibility into their retail value chain. We are uniquely positioned to be a partner for businesses that don't have the resources to put an employee at every point of sale, want to enable a self-service experience or need a solution to manage their procurement to cash workflow. We help the world buy it and go.

I will now turn the call over to the operator for questions. Operator?

(Operator Instructions) We will now take our first question coming from the line of Michael Latimore from Northland Capital.

Great. Congratulations on the nice quarter there, looks great. I guess just -- you talked a little bit about seeing some improvement in March. I guess could you provide a little more color around that? Is it solely related to some kind of school reopenings? Or is there sort of natural seasonality there? And then any color on the kind of transaction volumes you've seen in April would be great, too.

Yes. Mike, thanks. That's a good question. So what we saw in January and February was kind of transactions remaining relatively flat from what we saw at the end of the year as the pandemic kind of continued. We began to see improvement the last week of February, and it improved sequentially every week in March, and that has continued into April. We attribute that to vaccines getting out, people beginning to do more pleasure travel, probably not business travel yet, and some returning to offices.

We remain very optimistic as we see the number of vaccines and the number of states reopening, banks in New York saying that their people are going to come back to work. That's kind of the last thing that really hasn't come back much at all is our operators who serve primarily urban locations with their unattended retail solutions. And we're confident that we're beginning to see that. We'll continue to see that trend in this quarter and then in the fall as people fully come back to the office.

Great. Great. Nice to see the license and transaction gross margin back into the low 40s here. I guess, is that sustainable, in your view?

I'll let Wayne answer that one, Mike.

So as I mentioned a little bit in the prepared remarks, part of that is just the fact that the license revenue was a little bit higher percentage of the total. And of course, those have much higher margins than the transactions. Look, we're optimistic that over time, we're doing some things that will get the transaction margins up a little bit higher, but news on that as next year comes along.

Got it. And then just the last one here. You've reiterated kind of the year guidance including EBITDA. The upper end of your EBITDA guidance suggests fourth quarter EBITDA might be down a little bit sequentially. I guess is that -- does that -- what would be the factor there?

I think we just -- we stopped with our guidance here. We like what we guided last quarter. We've got some 4G devices out there that we've talked about before, that we want to make sure we get to our customers. We're comfortable with the range right now, and we'll see how the fourth quarter goes.

Your next question comes from the line of George Sutton from Craig-Hallum.

Sean, you referenced the re-signing of your largest customer. I'm assuming that's the largest customer that has a lot of franchisees. And you mentioned a deployment of 4G with them. I'm curious, given the low margins of hardware, can you just give us a sense of how that rolls out, how that fits into the guts of that contract?

I really thought you'd open with the crypto question since you called out that you were the first guy to mention crypto on the last call. So -- but I...

My second question, and that's my follow-up, just to be clear.

Okay. So we're excited with the renewal of that agreement. They will deploy those 90 -- or all their other ePort devices, 3G to 4G, over probably the first 2 or 3 quarters of FY '22. And we will -- the margin will essentially be flat for Canteen.

Okay. But in the -- so basically, this was done in an effort to maintain the customer over a multiyear period, obviously, a very important sizable customer.

Yes. And they -- we have some very good upside with their franchisees there and some things in the agreement that kind of, we think, will drive additional Seed and ePort sales.

I understand. By the way, you mentioned sort of at the end of your prepared remarks, we help the world buy it and go. I wondered -- I don't know if that is an official tagline or is that just a Sean-made-up line at the end of a comment?

No, that's our official vision statement, and we think it fits pretty well with helping the world buy it and go.

Got you. So my follow-up question is on the Bakkt relationship. And I'm just curious how you see that structurally working? Do you think that will be incremental to customer transactions?

I think -- nobody knows, I think, how the adoption of crypto will kind of roll out. But I think from your question last quarter and kind of momentum around it, and we leveraged our CTOs coming over from Bakkt to work with them on that. And we'll see. It will be available with devices in October, and we'll see kind of what the take rate is on it. But...

Can I ask one other follow-up relative to that? Is it -- is there a loyalty component associated with this?

We have a loyalty program now with our MORE card, and we are very focused on loyalty kind of in a number of areas. And we'll talk more about that in the -- if not in the next quarterly call, there'll be some announcements and some things we do as we move towards our big conference at NAMA, announcing a number of things there.

(Operator Instructions) Your next question comes from the line of Chris Kennedy from William Blair.

I guess the first one, after being at the company for a year, do you have any kind of long-term, either growth objectives or margin targets, that you could talk about?

Chris, after being here a year, I've got a much better feel for the company, and I continue to be excited kind of more every day. We're really excited about FY '22. And we've got some really cool things coming for FY '23. We'll give guidance on the next call for what we think '22 looks like. But I'm confident that you'll see some good things there. And we are very much focused on kind of continuing that growth as we go forward. And as I've said, kind of, I'd like to run the business for a quarter or 2 without COVID. So really feel confident in that. But I'm excited about what we're seeing and transactions are coming back and people are going back to the offices, and we've got some good stuff coming. So I think growth will be good.

We are investing to drive some of that growth. But we are -- we believe that we are improving the margin in the business and the -- some of the operating efficiencies that we will put in place you'll begin to see next year and we'll really see, I think, really bear fruit in '23. So I've talked about that my aspirational goal is the Rule of 40. We're not there yet, but we are making progress towards that. And I like the investments that we're making and the strong balance sheet that we have to drive growth in the future.

Okay. Great. And then just any update on initiatives to grow outside of the U.S.? Kind of what are you seeing in the market? What are the opportunities for you guys?

Sure. We are making progress on developing a plan of action in Latin America. Our team down there has made progress. We've briefed our board last week. And we are making progress towards a partnership, one that we've talked about before in Asia, specifically in Japan. And we're excited about the opportunity there. That's a very large vending market there. And as we get into '22, we're looking to hire business development people in other markets as well.

And there are no further questions over the phone line at this time. This concludes today's conference call. We thank you all for participating. You may now disconnect. Have a great day.