Cantaloupe Inc. (CTLP) has reported a solid performance in its second quarter of fiscal year 2024, with total revenue climbing to $65.4 million, marking a 7% increase year-over-year. The revenue growth was primarily attributed to a significant rise in transaction and subscription revenues, despite expectations of these revenues being at the lower end of the forecasted range for the fiscal year. The company's strategic acquisition of CHEQ aims to bolster its presence in the sports entertainment and restaurant sectors. Cantaloupe ended the quarter with a strong balance sheet, featuring $43.5 million in cash and cash equivalents, and anticipates high-end adjusted EBITDA guidance for the fiscal year.
Key Takeaways
- Total revenue increased by 7% YoY to $65.4 million in 2Q '24.
- Transaction revenue and subscription revenue grew by 17% and 10%, respectively.
- The company acquired CHEQ to expand into new sectors.
- Cantaloupe expects to be at the high end of its adjusted EBITDA guidance.
- The company anticipates total revenue between $275 million and $285 million for FY '24.
- Adjusted EBITDA for 2Q '24 increased by 119% from the previous year to $8.5 million.
- The company plans to focus on expanding gross margins and optimizing costs.
Company Outlook
- Cantaloupe projects total U.S. GAAP net income to be between $9 million and $15 million for FY '24.
- Higher-than-anticipated equipment revenue expected in the second half of FY '24.
- International expansion with Europe as the near-term contributor and potential growth in Latin America.
Bearish Highlights
- Subscription and transaction revenue growth projected at the lower end of the 17% to 21% range for FY '24.
- Delayed activations domestically and slower international revenue growth impact forecasts.
- Equipment revenue decreased by 25% due to the completion of the 3G upgrade cycle.
Bullish Highlights
- Strong increase in average revenue per unit (ARPU), up 14% to $182 in 2Q '24.
- Gross margin for the quarter stood at 37.2%.
- Net income applicable to common shares was $3.1 million.
- The company is excited about reaching margin profiles ahead of schedule and delivering operating leverage expansion.
Misses
- A decrease in operating cash during the second quarter was attributed to credit card processing mechanics and an increase in accounts receivable.
Q&A Highlights
- The company discussed the margin profile and potential for volume discounts with new partnerships.
- Operating cash flow is expected to be evenly distributed across the third and fourth quarters.
- The company reiterated its commitment to driving operational improvements, expanding micro market offerings, and investing in product development.
In summary, Cantaloupe's earnings call painted a picture of a company experiencing healthy growth and strategic expansion, despite some areas of slower progress. The acquisition of CHEQ is set to open doors in new markets, while the company's robust financial position and optimistic outlook for adjusted EBITDA reflect confidence in its business model and growth strategies. With a focus on operational efficiency and market expansion, Cantaloupe continues to adapt and evolve in a dynamic business environment.
InvestingPro Insights
Cantaloupe Inc. (CTLP) has shown a promising financial trajectory according to recent data. The company's market capitalization stands at a solid $494.55 million, indicating a strong position in the market. Despite a high P/E ratio of 46.26, the adjusted P/E ratio for the last twelve months as of Q1 2024 has improved to 38.65, suggesting that investors may be starting to see better value in the company's earnings potential.
An InvestingPro Tip highlights that Cantaloupe is trading at a low P/E ratio relative to near-term earnings growth, which may signal a buying opportunity for value investors. The company's revenue growth is also impressive, with a 14.43% increase over the last twelve months as of Q1 2024, indicating that Cantaloupe's business could be scaling effectively.
Moreover, another InvestingPro Tip points out that analysts predict the company will be profitable this year. This is corroborated by the company's strong gross profit margin of 36.78% over the last twelve months as of Q1 2024, which suggests that Cantaloupe is managing its cost of goods sold efficiently, a key factor in achieving profitability.
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Full transcript - USA Technologies (NASDAQ:CTLP) Q2 2024:
Operator: Thank you for standing by and welcome to Cantaloupe's Second Quarter Fiscal Year 2024 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Dara Dierks, Investor Relations. Please go ahead.
Dara Dierks: Thank you. Good afternoon, everyone and welcome to the Cantaloupe's 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 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 results 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. 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 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.
Ravi Venkatesan: Thanks, Dara. Good afternoon, everyone and thank you for joining us today for our second quarter of fiscal year 2024 call. During the second quarter of fiscal year '24, our total revenue increased 7% year-over-year to $65.4 million, driven by 17% year-over-year transaction revenue growth and 10% year-over-year subscription revenue growth. We now expect subscription and transaction revenue to be at the lower end of the 17% to 21% range for the fiscal year due to a slower-than-anticipated ramp in international revenue and delayed activations domestically. We now expect subscription revenue to be in the 12% to 15% range for fiscal year '24. Our backlog of shipped devices and micro markets remains robust. We anticipate growth in subscription revenue in the second half to increase as we work through this backlog and continue to invest in decreasing activation time lines. We've spoken before about our initiatives to drive subscription revenue growth, a key driver of continued expansion in operating leverage and we continue to be laser-focused on this. In addition to a robust backlog, our international pipeline continues to build and we are as excited as ever about the successes we are having in Europe and Latin America. I want to highlight the progress we've made in recent quarters on another key driver of operating leverage which is expansion of our gross margins. Total gross margin for the quarter was 37.2% compared to 30% in the same quarter last year. This increase in gross margin was driven by higher margins across all lines of revenue. Transaction margin or transaction revenue, the largest of our 3 revenue streams, realized gross margins about 20% this quarter, up from the high single-digit percentages just a couple of years ago. Recall that we had previously outlined the plan to drive transaction margins to 20% plus by fiscal year '25. I'm delighted to report that we've reached that goal a year ahead of schedule as there is no additional SG&A expense associated with the incremental dollars we received through transaction processing revenue, this gross margin expansion has a positive impact to our EBITDA and free cash flow, helping drive profitability. We now expect to be at the high end of our adjusted EBITDA guidance for fiscal year '24. All in, we are pleased with our performance for the first half of the year. In addition, we kicked off the second half of the year with some exciting news. Last week, we announced the acquisition of CHEQ. This strategic investment positions Cantaloupe for expansion into the large and rapidly growing sports entertainment and restaurant sectors with a comprehensive suite of self-service solutions. There is tremendous synergy between our combined product line which will enable growth across our combined customer base. The addition of CHEQ will fit nicely into our long-term strategy and create a new growth vector for the business. We are excited to welcome the CHEQ team to the Cantaloupe family. I now want to highlight select customer wins from this quarter. There is a growing trend among customers seeking all-in-one solution providers that can manage cashless payments, vending management software and micro market solutions. Canteen of Northern California, a vending operator serving Sonoma, Napa and Marin counties migrated from competitor kiosks to our platform and integrated Seed software throughout their operation. Paramount Vending was another great example of a competitive cross-sell win in the micro market space. Nick De Pascal [ph] of Paramount Vending stated, "We had previously used Three Square Market but had a combination of other micro market kiosks and we have been seeking a more streamlined way to manage our entire business. We were already all in on Seed as our VMS and we're excited to take advantage of the trade-up program to upgrade to Cantaloupe Go, moving our entire micro market business to Cantaloupe as we continue to grow." Our sales team continues to grow penetration in the small business micro market space with several wins, including TechSun Vending, MeFit Vending, who all deployed micro markets and Cooler Cafes. We also continue to see increased penetration of Seed. We are seeing steady adoption of Seed markets which is becoming the industry standard for combining management of vending micro markets and office coffee businesses. During the second quarter, we posted a number of competitive wins with customers converting their operations to Seed, including Culinary Ventures Vending, a large vending operator in the tri-state area and Vend West Services in Coos Bay, Oregon, who completed a full conversion to Seed and ePort. On the product side, we recently released 2 new subscription products, Seed Analytics and Seed Intelligence. These tools are designed to transform the way vending operators leverage data for revenue growth, improving real-time decision-making and enhancing productivity. Seed Pick Easy, our warehouse picking solution is now fully integrated with the Three Square Go kiosk, opening up opportunities with micro market operators that need a nimble warehouse picking solution. The Seed platform, including Seed Entrepreneur and Seed Enterprise is now available in Mexico with full Spanish language support. Seed was showcased at our Cantaloupe LIVE Mexico event held in December. We hosted over 100 industry leaders there. Prospects were able to hear strong endorsements from Riviera vending and Feel Good Market who described the utilization of Cantaloupe's vending and micro market solutions. We also continue to see expansion into the mid-market segment, a newer segment for us, as well as with channel partners and in adjacent verticals. For example, our partnership with AVS Companies, one of our master resellers continues to build as they purchase additional devices in Q2 and also expanded into the micro market space by purchasing Cantaloupe Go kiosks. Growth in adjacent verticals was driven by an expansion into the amusement sector with Mendota Valley Amusement, a supplier of music and gaming machines through the United States. CEO, Bill Lethert stated, "Thanks to Cantaloupe, we are seamlessly transitioning from zero to implementing hundreds of cash card readers with plans for further expansion. This strategic move is projected to boost our revenues by at least 25%. Choosing Cantaloupe was a clear decision for us as their innovative solutions perfectly cater to business growth objectives across the gaming and restaurant spaces." On the international front, our event in Mexico City in December was a success. Since that event, we've started pilots with multiple customers in Latin America which we expect to scale in Q3 and beyond. In Europe, we've secured a number of deals with telemetry and cashless payment acceptance. These deployments are going through the stages of pilots followed by larger scale deployments. We also continue to experience growth in our micro market solutions for the European market, bringing on new customers such as Canny Local Vending, The Vending People and RGs Coffee [ph]. So as you can see, the shift we made to our go-to-market strategy over the last 12 months are showing results. We also remain focused on the continued optimization of cost of goods sold. As mentioned earlier, we've made significant progress in expanding gross margins through the optimization of COGS, especially in transaction processing. Lastly, being disciplined on operational expenses is also a priority and we expect to finish the year with a decrease in OpEx as a percentage of revenue. In Q2, OpEx increased slightly year-over-year which was driven by our investments in international expansion and also the inclusion of Three Square Market related expenses this quarter. We remain excited about the long-term opportunity for Cantaloupe, driven by secular tailwinds, including decreased use of cash, increased use of credit cards and the increased use of touchless payment options which continue to drive industry growth. While we are excited about the growth prospects in adjacent verticals, Berg Insight forecasts that the number of connected vending machines worldwide will grow at a CAGR of 16.4% to reach 12.3 million units by 2027, a forecast that augurs well for the growth of our core vending and micro market business. In addition, Consumer Research confirms increased willingness to buy more items and buy more expensive items from vending machine. As for the operators, labor shortages and a higher reliability derived from cloud processing continues to drive increased adoption of Seed as an industry platform. Seed technology continues to be a proven solution to help customers drive revenue and deliver cost reductions. In summary, I could not be more proud of our team's abilities to execute on strategic priorities, especially the expansion of gross margins and discipline with operational expenses, that have led to strong growth in adjusted EBITDA. We are proud of our product innovation that enables our customers to increase revenue through new modes of payment, additional consumer engagement features, as well as new business tools for running a more efficient operation. With that, Scott will now review our Q2 results in more detail as well as review our updated outlook for fiscal year '24. Scott?
Scott Stewart: Thanks Ravi. As Ravi mentioned, we delivered another strong quarter. Our 2Q '24 revenue was $65.4 million, up 7% year-over-year. Our combined transaction/subscription revenue grew 15% to $56 million during the quarter. This includes $18.1 million of subscription revenue, a year-over-year increase of 10% and $37.9 million of transaction revenue, an increase of 17% year-over-year. The overall increase in revenue was again driven by increased processing volumes, higher average transaction ticket sizes and subscription revenue growth for micro markets. As you may have noticed in our earnings release, we are now providing a new operating metric, average revenue per unit or ARPU. This is defined as our total subscription and transaction fees for the trailing 12 months, divided by average total active devices for the same period. Management uses this metric to measure the impact of new products and features, as well as higher ticket items being sold through our points of sale. The ARPU for 2Q '24 was $182, up 14% from the prior year period. Our equipment revenue was $9.3 million, a decrease of 25% compared to Q2 FY '23. This was primarily due to prior year benefiting from the 3G upgrade cycle that is now behind us. But overall equipment revenue was down, we did see an increase in active device growth of 7% year-over-year. Total gross margin for the quarter was 37.2% compared to 30.1% in the same quarter last year, driven by higher margins across all 3 revenue lines. Subscription and transaction revenue margin was 43.1% versus 38.3% in prior year. This increase was driven by an improved processing take rate, reduced processing costs and subscription revenue representing a larger share of our overall revenue. Equipment revenue margin for Q2 FY '24 improved to a positive 1.8% from a negative 2.3% in prior year. This is down from the immediate prior quarter of 12%. The sequential decrease was driven by several opportunistic deals we were able to replace competitor devices. Total operating expenses for Q2 FY '24 were $20.7 million compared to $19.4 million in Q2 FY '23. Net income applicable to common shares for the second quarter was $3.1 million or $0.04 per share compared to a net loss of $0.6 million or $0.01 per share in the prior period. Adjusted EBITDA was $8.5 million in the second quarter compared to $3.9 million in the prior year period, an increase of 119%. We ended the second quarter with cash and cash equivalents of $43.5 million. Our capital allocation priorities continue to target profitable growth and are specifically focused on driving operational improvements to control OpEx, expand our micro market offerings and investing in our domestic and international go-to-market strategy and product development. Now turning to our FY '24 guidance. We continue to expect total revenue between $275 million and $285 million. We continue to expect transaction subscription revenue to be between $234 million and $242 million. As Ravi mentioned earlier, we anticipate being on the lower end of this range due to a slower-than-anticipated ramp in international revenue and delayed activations domestically. In addition, we expect higher-than-anticipated equipment revenue in FY '24 which will ramp throughout the second half of the year as our international presence ramps. We continue to expect total U.S. GAAP net income to be between $9 million and $15 million. We expect to be at the higher end of our previously provided adjusted EBITDA guidance of between $28 million and $34 million and total operating cash flow to be between $28 million and $38 million. With that, we'd now like to turn the call back over to the operator for the Q&A session. Operator?
Operator: [Operator Instructions] Our first question comes from the line of Cris Kennedy of William Blair.
Cris Kennedy: So it's been over a year since your Investor Day and at the end at Investor Day, you talked about 20% plus subscription growth for the business I think, over the next 3 years. Can you just give your updated thoughts on achieving that goal?
Ravi Venkatesan: Yes, Cris, thanks for asking the question. We are on the right trajectory for the long-term goals we outlined. The challenge that we faced and continue to face is delayed activation time lines. The good news is it's not a demand problem. We have a significant backlog of sold and shipped devices in micro markets, the challenge is more of an installation and activation time line issue and we are continuing to invest in various ways to tackle that challenge. So as that normalizes, we expect the subscription revenue growth to ramp. And we still believe that a long-term sustainable target growth rate for our subscription revenue is the 20%, acknowledging the fact that right now, we are at a much lower number than that number.
Cris Kennedy: Got it. Okay. And then real quickly on international, it's been a strategy for a long time and you guys seem very confident about it moving the needle, I think, in the back half of this year but it seems like it's taking a little bit longer than expected. Can you just talk about the puts and takes with the international business?
Ravi Venkatesan: Thank you. So on the international business, as I mentioned, we've now gone through several stages of doing launch events, doing pilots, proving out various aspects of the solution, including cashless payment acceptance, telemetry, Seed software, as well as the micro market kiosks. And now we are starting to scale all those. So while it's taken longer than perhaps I would have liked, maybe answering this question 2 years ago, right now, we are shooting from a position of strength and I'm seeing great reception to our products and solutions in both Europe and Latin America. So that's what gives us the confidence in the ramp in the back half of this fiscal year.
Operator: Our next question comes from the line of George Sutton of Craig Hallum.
George Sutton: Ravi, just a follow-up on the European piece of that. You mentioned you're in the pilot phase for many of these deals. Can you just walk through a time frame that a pilot would typically take? And then when would we start to see those deals roll out?
Ravi Venkatesan: Yes. Thanks for the question, George. And typically, these pilots run 3 to 4 months. And a majority of them were actually started at various points in the last quarter, some of them even earlier than that. We almost chose not to disclose too much information about all the specific customers and all the specific pilots for competitive reasons but it's a juicy ramp. It's the best way I can describe it and I'm very excited about where we are with Europe and Latin America.
George Sutton: Not sure how much you want to disclose but you talked specifically about trade-up program. And just curious how that trade-up program works.
Ravi Venkatesan: It's as it sounds, it's an incentive for operators who may be stuck with equipment and micro markets, in particular, that are older. Like anything else, if you set something up 4, 5 years ago, it starts looking dated as -- from a consumer experience perspective and our trade-up program offers customer an opportunity to kind of trade up to the latest and greatest with us and we provide some incentives for that.
Scott Stewart: And just to add to that a little bit, too, it also helps the customers that they want to be all in with Seed. So if they've been using Seed Markets and they have Seed on their vending machines but don't have Three Square Market kiosks is the way for them to trade out and get a Three Square Market kiosk.
George Sutton: Understand. Lastly, Ravi, you mentioned with CHEQ. There's a -- you see that as a new vector of growth. Can you just talk about how this works with the rest of your distribution capability?
Ravi Venkatesan: Absolutely. Look, our mission simply put is we want to move as much commerce as possible to self-service commerce and we want to be the leading provider of technology that powers that self-service commerce. When we looked at CHEQ, in the stadiums and live events space, CHEQ has built an incredible set of technology capabilities that allow consumers to order from a mobile app on their phone. They have an app that's embedded into the various league apps and the various teams apps and it also works by scanning QR codes at various locations at a stadium. There are kiosks that are distributed at various locations, handheld devices as well as even cashier-assisted point of sale solution. So in other words, it's a pretty comprehensive suite of self-service capabilities that cut out the long lines and some of the challenges that these live events face and enable more frictionless commerce. So it fits very nicely. The best part about the acquisition as we dug into it, was the same companies that we serve in the vending and micro market space are the companies that provide convenience services to these live events in stadium. However, they don't currently benefit from the value proposition that Seed is providing around optimizing their warehouse workflow, optimizing and dynamically scheduling field services to go out and deliver food products and beverage products. As well as doing smart merchandising because they have now real-time inventory data, real-time sales data, et cetera. So with what CHEQ has in terms of tech capabilities and what Seed brings to the table in terms of these things, it's a very powerful solution and we can pitch to the exact same companies that we've already been selling into and have large and deep relationships with.
Operator: Our next question comes from the line of Griffin Boss of B. Riley.
Griffin Boss: Just want to jump back to CHEQ real quick while we're on that point. Is there -- I mean, I know it's a relatively nascent business, only found out a few years ago but is there any more color you can give on the revenue profile or margins, considering that the purchase price was relatively nominal?
Ravi Venkatesan: Sure. I'll let Scott jump in with the margin profile and the breakup of revenue.
Scott Stewart: Yes, sure. So overall, the revenue profile is they're predominantly transaction revenue. So 95% of the revenue is transaction based. They do have some subscription revenue. Overall, the margin profile, it's a little hard to say right now but we do know that there's going to be lots of synergies that we're going to receive from bringing them into our transaction processing realm and be able to get the type of volume discounts that we get will help really improve their margin profile. But with them only being in the business for 2 years, it's not really worth talking about, I think, the margin profile.
Griffin Boss: Sure. Yes. No, fair enough. Appreciate it. And then next for me, just on the cash flow -- operating cash flow guide. I'm just curious if you can give more color on the cadence in the back half of the year? Is it -- are you sort of expecting to see something similar as you saw last year in terms of sort of front-loaded in 3Q? Or is it going to be more evenly weighted this operating cash flow coming in the back half?
Scott Stewart: Yes. It will be probably evenly weighted over third quarter and fourth quarter. We had a decrease in our operating cash during the second quarter but a lot of that was just the mechanics of our credit card processing. During the -- because of the holidays at the end of the year, there's always a little bit of a decrease in the volume. And then this year also happened to end on a Sunday. We had 3 days of transaction processing revenue that increased our accounts receivable. They got paid out the first week in January. So that decrease is very temporary. And then you'll start to see that cash -- operating cash build up in the third quarter.
Operator: Our next question comes from the line of Michael Latimore of Northland Capital.
Unidentified Analyst: This is Aditya [ph] on behalf of Mike Latimore. Could you give some color on the hardware revenue? Do you expect it to grow higher sequentially for the rest of the year?
Scott Stewart: Yes, we do. So we expect it to grow sequentially in the third quarter and be even more heavily weighted in the fourth quarter. And a lot of that has to do with our international ramp.
Unidentified Analyst: All right. And in terms of the international pipeline, do you think Europe is a bigger contributor? Or is it Latin America, who is a bigger contributor?
Ravi Venkatesan: In the near term, Europe will be the bigger contributor. But as I've mentioned in the past, Latin America is an interesting market. It's a barbell market where you've got many number of very small players and then a very small number of very large players. So as we get any one of those large players to come on board and that is in progress, then it will move in a very lumpy manner to large numbers of connected devices. So near term, Europe will definitely be bigger. I think medium term, we'll see growth in both kind of evenly based.
Operator: Thank you. I would now like to turn the conference back to Ravi Venkatesan for closing remarks. Sir?
Ravi Venkatesan: Thank you, operator. Again, thanks for joining us this afternoon. In summary, I'm very excited about getting ahead of schedule and plan on our transaction revenue journey and arriving upon margin profiles that we expected or anticipated to reach in fiscal year '25 and we are there almost a year ahead of schedule and we'll continue to consolidate and build on those strengths. We remain committed to delivering operating leverage expansion in this business and the goals that we outlined at our Investor Day in December 2022 and look forward to executing on that trajectory. Thank you.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
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