Q3 2021 Cantaloupe Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Cantaloupe, Inc. Third quarter fiscal year 'twenty to 'twenty, One earnings conference call at.
At this time all participants are in a listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
I would now like to handicap on for infield with your first speaker today, Alicia Yerba would gate VP of corporate communications and Investor Relations for cancer looking please go ahead.
Thank you and good afternoon, everyone welcome to the kind of the third quarter of fiscal 2021 earnings conference call with me on the call. This afternoon are Sean Keating, Chief Executive Officer, Wayne Jackson, Chief Financial Officer, Anand Agarwal, 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 managements view only as of the day. They are made.
<unk> 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 kind of lifts operating results here.
These non-GAAP financial measures are supplemental to and not a substitute for GAAP financial measures such as net income or loss.
Sales 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 Dot com.
And with that I would now like to turn the call over to our Chief Executive Officer, Sean Feeney Shang.
Thank you Alicia and thank you everyone for joining us today I hope everyone is safe and well a few days from now with a marked my one year anniversary at the company I'm proud of my team's accomplishments over the past 12 months.
Look forward as we execute on our plans for innovation and growth.
Today marks the milestone of reporting as candidate 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've closed a $55 million pipe transaction during the quarter with J P. Morgan as 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 three more years. This customer has also committed to upgrading all of their remaining active <unk> 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 <unk>.
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 for.
First drive sustainable organic growth.
We look to expand our customer base by deepening existing relationships and adding new customer wins.
Mark will go into more detail on a few moments on our success during the quarter on both of these for us.
We also look to provide new and innovative products to our customers.
This week, we announced a significant partnership with cashless 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 back 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 ecommerce integration along with partners supply Wizards and tech to 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 plus.
This technology offers customers an updated experience with additional features at their fingertips and as part of our best in class platform as a service, it's tailored to small and medium sized businesses with under 400 unattended point of sale and provides enhanced insights for scheduling pre kitting.
<unk> and real time alerts along with a streamlined user interface for better efficiency and ease of use.
Innovation is what keeps us on our 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 Felicia schmuckler as CIO reporting to Ravi Venkataswamy. She joins us from Comcast and is an innovator in strategies and technology that strength and strengthen.
Business operations, we are excited to welcome her on board I.
I will now turn the call over to a not our chief revenue officer to give you more color on the quarter's business performance.
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Sure.
Thanks, Sean.
I will touch on three 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 its flexible to operate it gives our customers real time insight into their business operations.
As a result, it provides high ROI to our customers.
A 25% to 35% increase in revenue at our customers' machines were reported digital payments are used.
Also customers have reported at 30% to 40% Opex reduction after implementation of our <unk> software solutions.
What's great is that this technology provides us with a compelling land and expand strategy.
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 the global connect a provider of bending 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 on to cede over the coming years.
CRH catering, which is one of the largest gaming company in the northeast has upgraded to <unk> and is fully deployed on seed.
And several of our Pepsi bottle of clients across the country have upgraded to <unk> 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 operation.
As well as the Texas call refreshment and independent operator in Texas, who will be deploying both E sport digital payments and software.
And as Sean mentioned, we are excited about the launch of heat cashes plus 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 any M.
And creating timeless memories or CPN two of the largest unintended amusement operators in the U S.
And we've also expanded our business with additional cashless at CST service works, the largest operator of air Vac machines and laundry in the U S.
Lastly, I wanted to talk about the exciting shift to digital payments, we are witnessing in our space.
Cash on transactions continued to accelerate within our customer base.
As of the end of April cashless transactions made up 67% of sales volume at our customers' machines.
Per 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 and full detail Wayne.
Thanks, and good afternoon, everyone.
Revenue for the third quarter of FY 'twenty, one totaled $42 $8 million relatively flat to a predominantly pre COVID-19 Q3, FY 'twenty 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 'twenty one.
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 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 for <unk> as well as continued to grow our new customer count.
Equipment revenue for Q3, FY 'twenty, one was down 1% compared to the prior year third quarter, which includes the shipment of devices from a significant new customer contract entered into during FY 'twenty.
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 'twenty one.
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 on the current quarter than in the prior year.
Equipment margin for Q3, FY 'twenty, one 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 larger 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.
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 'twenty, one totaled $13 7 million, a 14% decrease year over year.
During the quarter, we added two point million $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 a $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 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 our.
Our loss of <unk> <unk> per basic share compared to $9 6 million or loss of <unk> 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 where on a very strong position to invest in our future growth initiatives.
Finally, we are reiterating our guidance on FY 'twenty one.
We expect revenue to be in the range between 163 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, Duane 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.
A 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 on technology and payments company that gives our.
<unk> scale and flexibility in 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. Once you enable a self service experience are needed solution to manage their procurement to cash workflow.
The world by it and go.
I will now turn the call over to the operator for questions operator.
We will now open the call to your questions. If you would like to ask a question. Please press Star then the number one on your telephone keypad again that is star one.
Please limit your call to take questions. If you have additional questions. Please add yourself back to the queue. Thank you.
We will now take our first question coming from the line of Mike Latimore from Northland Capital. Your line is open.
Great. Thank you.
Congratulations on the nice quarter there.
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 reopening or is there sort of natural seasonality there and then any color on the kind.
Kind of transaction volume as you've seen in April it would be great too.
Yes, I think 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.
Free week in March and that has continued into April.
We attribute that to vaccines getting out people are beginning to do more and.
More pleasure travel probably not business travel yet.
Some returning too.
To offices.
We remain very optimistic because we see the day.
Number of vaccines on the number of states reopening banks in New York, saying that people are going to come back for the work that's kind of the last thing that it really hasnt come back much at all.
Our operators are.
Primarily urban locations with there.
Unattended retail solutions and.
We're confident that we're beginning to see that we will continue to see that trend.
And in this quarter and then in the in the fall as people fully come back for the office.
Alright, great.
Nice to see the license and transaction gross margin back into the low forties here I guess is that is that sustainable in your view.
I'll, let Wayne answer that one Mike Hi, Mike So as I mentioned.
As I mentioned all of it in the prepared remarks part of that is just the.
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.
Next year comes comes along.
Got it and then just fair last on here.
You've reiterated kind of the year guidance, including EBITDA.
The upper end of your EBITDA guidance suggests fourth quarter, EBIT EBITDA might be down a little bit sequentially. I guess does that is that what would be the factor there.
Yes.
I think we just we stuck with our guidance here, we like we like what we guided last quarter.
Hum for J devices out there that we've talked about before.
That we want to make sure we get our customers were comfortable with the range right now.
The fourth quarter guidance.
Got it alright. Thanks.
Thanks very much.
Thank you.
Your next question comes from the line of George Sutton from Craig Hallum. Your line is open.
Thank you Sean you referenced.
The re signing of your largest customer I am assuming that's the largest customer that has a lot of franchisees and you mentioned day.
Deployment of for GE 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 <unk>.
Guts of that contract.
Thanks, Joe I really thought you'd opened with the crypto question since you called out for you or the first guidance.
On the last call so.
Second question and I know Thats my follow up just okay.
Okay. So.
We're excited with the renewal of that debt agreement.
They will deploy those 90.
Are there other <unk> devices.
<unk> over <unk>.
Probably the first.
First for three quarters of.
FY 'twenty two.
And we will the.
The margin will essentially be flat for for <unk>.
Okay.
So basically this was done in an effort to maintain the customer over a multiyear period, obviously, a very important sizeable customer.
Yeah.
Day.
We have some very good upside with their franchisees franchisees, there and some things on the agreement that kind of.
We will drive additional.
Seed any port sales.
I understand by the way.
Mentioned.
Sort of at the end of your prepared remarks, we help the world by it didn't go I Wonder 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 that's our.
Official vision statement.
And we think it fits pretty well with helping the world Biden, Joe got you. So my follow up question is on the.
That relationship and I'm, just curious how 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.
We'll kind of rollout.
But I think from.
Your question last quarter, and kind of momentum around it and we leveraged our cdos.
Coming over from back to to work with them on that.
And.
We will see it will be.
Available with devices in.
In October and.
We'll see kind of what the what the take rate is on it.
But can I ask similar question 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 will talk more about that in the <unk>.
If not on the next quarterly call there'll be some.
Some announcements on some things we do as we are.
Move towards our Big Big Conference at <unk>.
<unk> a number of things there.
Got you Okay Super Thank you.
Thanks George.
As a reminder to ask a question. Please press Star then the number one on your telephone keypad again that is bottom line. Your next question comes from the line of credit from Kennedy from William Blair. Your line is open.
Hey, guys. Thanks for taking the questions I guess the first one after being at the company for a year do you have any kind of long term growth objectives or margin targets that you could talk about.
Chris after being here year, I've got a much better feel for the company.
You too to be excited kind of more every day.
We're really excited about FY 'twenty, two and we've got some really cool things coming for FY 'twenty three.
Give guidance on the next call for what we think 22 looks like but.
I am confident that.
Youll see some good things there.
And we are very much focused on.
Kind of.
<unk> net growth.
As we go forward and as I've said kind of I'd like to run the business for a quarter or two without COVID-19.
So really feel confident in that but.
I am excited about what we're seeing in 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 youll begin to see next year, and we'll really see I think really bear fruit in 'twenty three 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 in the.
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 what are you seeing in the market what are the opportunities for you guys. Thanks, a lot guys.
Sure we are making.
Making progress on developing a plan of action in Latin America.
Our team down there is.
<unk> made progress we 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 'twenty, two we're looking to hire.
Business development people in other markets as well.
Thank you.
Yeah.
And there are no further questions over to pull on line at this time.
This concludes today's conference call. We thank you all for participating you may now disconnect have a great day.
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