Q1 2022 Cantaloupe Inc Earnings Call
Speaker's presentation there'll be a question and answer session.
I would now like to hand your conference over to your first speaker today Alicia Nampa.
Vice President of corporate Communications and Investor Relations for tons of lump incorporated. Please go ahead.
Thank you and good afternoon, everyone. Welcome to the kind of look first quarter earnings conference call with me on the call. This afternoon is Shaun <unk>, Chief Executive Officer, Wayne Jackson, Chief Financial Officer, and Ravi. Thank God tests on Chief Technology 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 fact 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 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.
Nerves are cautioned not to place undue reliance on any such forward looking statements, which reflect managements view only as of the date they are made.
Councillor 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 caseloads 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 also been posted on the Investor Relations section of our website at www cancel their dot com.
And with that I would now like to turn the call over to Chief Executive Officer, Sean Feeney Sean.
Thank you Alicia and thank you everyone for joining us on our first call of the new fiscal year.
Before I dive into the business update I want to point out that starting this quarter, we are providing additional visibility into our financials by breaking out revenue streams and operating expenses differently, which you can see in our earnings press release, and which Wayne will describe in more detail. This disclosure.
Lines more closely with the way, we internally manage the business.
We had a strong start to fiscal year 2022, with first quarter revenues, increasing 24% year over year, driven by a 34% increase in transaction revenue.
And 37% increase in equipment revenue over the prior year quarter.
Relating to our transaction revenues are volumes are now exceeding pre pandemic highs.
Comparing the current quarter to prior fiscal year quarter total dollar volumes increased by 36% active customers increased by 17% and active devices were up 3%.
We are seeing continued demand for cantaloupes products and services over the last few weeks Ive been meeting with operators to hear more about trends. They are seeing in the market and how we can help them.
It is clear from these conversations that customers have an increased level of confidence in their business outlook.
The return of travel the return to schools and the need for the Digitization of payments are all positively impacting our business.
Operators continue to provide feedback that our seed pro software is helping them keep up with these trends as well as helping them to navigate supply chain issues and the tight labor market.
Plain and simple our software enables operators to be more efficient.
Few weeks ago, we highlighted seed pro and seed offices very positive impact on food Express a new client and one of America's fastest growing foodservice operators located in the southeast.
In August we acquired yoke payments the initial customer reaction to the combination of yoke and our seed markets product has been resoundingly positive.
Seed software combined with Yokes point of sale platform offers our customers a unique solution for micro markets. Every operator I've spoken to recently is looking to add micro markets the high value locations and redeploy vending machines and other parts of their operation.
Micro markets are expected to grow somewhere between 15% and 30% this calendar year and growth is expected to accelerate into calendar 2022. According to automatic merchandisers 2021 state of the industry report.
Another trend influencing our industry is <unk> enablement.
Which is going to have a significant impact on hardware spend for our customers as card issuers begin to enforce compliance over the next year.
Cantaloupe has the largest footprint of ENB compliant devices in the U S. And we are working with customers who are not yet ENB compliant to upgrade their devices over the coming months.
We also continue to see a rise in MA M&A activity in the unattended retail space in many cases. This is driving conversion to seed software and adoption of <unk> as larger enterprise clients add incremental routes and points of sale to their operations. We expect this trend to continue.
These trends, including an improving business outlook labor shortages, ENB enablement and consolidation in the marketplace are all driving forces behind our growth initiatives.
Now turning to a few updates on our product roadmap.
We are currently shipping.
E sport engage our Nextgen touch screen interactive device engage offers best in class networking security and interactivity is ENB compliant and accepts all forms of contact and contact less payments.
As discussed at Noma, one of our strategic pillars is to help our customers better engage their customers, which they engage device combined with seed enables.
Over the next few months, we will be rolling out are more mobile engagement loyalty upgrades.
Which will provide additional functionalities, including the first acceptance of crypto as well as further loyalty rewards and other payment methods. This initiative follows our announced partnership with back earlier this year.
Lastly, we launched our campus card solution, which simplifies payment transactions for students. So they can use their apple mobile wallets to pay for goods and services directly on campus.
We remain committed to investing in sales and service capabilities.
Last week, we hosted our first seed University since the pandemic held over two days here in Atlanta. It was a resounding success with over 140 customers attending including a number of whom were unable to make it to namba in August.
We are working expeditiously on <unk> and <unk> upgrades within our existing customer base, while also targeting expansion opportunities, resulting in new equipment and subscription sales with both new and existing customers.
During the quarter, we welcomed refreshment, Inc. A large coke bottler with a full line vending business. They bought a full suite of seed software services, The Florida Department of Education Division of Blind services was another notable win.
We also have customers, who have converted from competing technology to seed during the quarter. We saw seed expansion at legend commerce and their Maryland location, which included conversions to seed from competitors' products at two companies, they acquired which were gel cap and vending plus.
To wrap up we are excited to see the continued adoption and growth of unattended retail we have spent the past year developing and executing on a robust roadmap to keep pace with the trends and expectations of consumers.
While we still have work to do we are well positioned to help our customers adapt to new trends, while continuing to provide solutions to better engage customers grow sales and improve efficiency.
With that I would like to turn the call over to Wayne to go over the financials in greater detail Wayne. Thanks.
Thanks, Sean and good afternoon, everyone. As Sean noted, we are disclosing a breakout of subscription and transaction revenue and our revenue footnote. In addition, we have revised the presentation of operating expenses in our income statement by disaggregated, selling general and administrative expenses.
The new presentation is intended to provide additional transparency and reflected more detail, how we manage our business.
From a financial perspective, we had a solid quarter Q1, FY 'twenty two revenue was $45 8 million, a 24% increase year over year, driven by record transaction and subscription fees of $26 4 million and $14 $2 million, respectively transaction fees grew 30.
<unk>, 4% year over year and 8% sequentially.
Subscription fees increased 6% year over year and 2% sequentially.
Equipment revenue for the first quarter was $5 2 million, a 37% year over year increase but down sequentially. Following a record high amount in Q4 FY 'twenty one.
We are seeing increased momentum in the equipment pipeline with strong orders continued into the second quarter.
Active customers totaled almost 21000 as of September 32021, compared to approximately 18000 as of September 32020, an increase of 17% year over year and 5% sequentially.
Over Q4, FY 'twenty one.
Active devices totaled $1 1 million as of September 32021, an increase of 3% year over year.
Total gross margin for the quarter was 32, 5% down from 38, 6% in the prior year fiscal first quarter.
But up 2% sequentially.
As a reminder, Q1 FY 'twenty, one benefited from a onetime out of period adjustments.
Subscription and transaction revenue margin was 35, 9%, reflecting a higher mix of transaction revenue versus the prior year quarters gross margin of 41, 6%.
Equipment revenue margin for Q1, FY 'twenty two decreased five 3%.
Decreased to five 3% from 12, 4% in the prior year.
Last year's equipment sales margins benefited from the out of period adjustment mentioned earlier.
As I previously noted we now break out operating expenses in greater detail in our financial statements rather than total selling general and administrative expenses, we now disclose sales and marketing cost technology.
Technology and product cost.
And general administrative cost.
Total operating expenses in the first quarter totaled $16 million compared to $17 9 million in Q1, FY 'twenty, one a 10% decrease over the prior year driven by lower G&A expenses.
As noted in our prior earnings call. We are reinvesting some of these G&A savings into our growth initiatives.
During the current quarter compared to the prior year fiscal quarter, our sales and marketing expenses increased 46% and our technology and development expenses increased 68%.
Meanwhile, our G&A expenses were down approximately 40% year over year, primarily due to a reduction of outside consulting costs during the current quarter.
Other income in the quarter was <unk> $1 million compared to a loss of $3 million in the first quarter of the prior year, which included charges associated with last year's debt refinancing.
Net loss applicable to common shareholders for the first quarter was $1 6 million or negative <unk> <unk> per share.
Compared to a loss of $6 9 million or negative <unk> 11 per share in the prior year period.
Adjusted EBITDA was $1 9 million in the first quarter compared to $5 million in the fourth quarter and a negative <unk> 5 million in the prior year period.
Relating to our balance sheet and liquidity, we ended the first quarter with cash and cash equivalents of $82 $5 million.
Turning to our guidance.
We remain confident in our previously issued guidance and continue to expect revenue to be between 202 hundred $10 million representing year over year growth of 20% to 26%.
We expect transaction and subscription revenues grew consistently throughout the year as businesses return to offices.
Anticipated equipment revenue is weighted towards the second half of the fiscal year due to three G upgrades and growing momentum in our engage device.
Net loss applicable to common shares is expected to be between $7 million and $5 million.
Adjusted EBITDA to range between $8 5 million.
And $10 $5 million.
We expect to generate $8 million to $10 million in cash flow from operations.
And lastly capital expenditures will range from $12 million to $14 million.
I will now turn the call over to the operator for Q&A.
Operator.
Thank you we will now open the call for questions. Please limit the call to questions. If you have additional questions. Please add yourself back to the queue.
We will now take our first question.
Our first question comes from the line of Cris Kennedy with William Blair. Your line is now open.
Hey, guys. Thanks for taking the question and I appreciate the new disclosure on the subscription revenue up 6% in the quarter, how has that trended relative to history.
Alright. Thanks for the question. This is Wayne so sequentially is a good indicator right now going about 2% a year and the reason I say that if we look at.
Fiscal 'twenty in the last two quarters of that year, we had some we had some credits related to COVID-19. So so maybe start looking at what we've disclosed in FY 'twenty one in first quarter 'twenty, two sort of the trend line.
The sequential growth if that makes sense.
Sure Okay.
Yes that does and then just broadly can you talk about the.
The gross margin profile between subscription fees and transaction fees. Thanks, a lot guys.
Sure.
That one is subscription fees are very similar to traditional SaaS fees.
You would expect.
And transaction fees are very much lower margin, but much bigger numbers.
Okay understood. Thank you.
Your next question comes from the line of Mike Latimore from Northland Capital. Your line. Your line is now open.
Great. Thank you.
Yes, the additional clarity.
In terms of the subscription line can you just talk a little bit about.
The key drivers for that line over the next year.
New connections seed cross sell new products.
To prioritize the key drivers for subscription over the next year.
Sure. Thanks, Mike.
The key drivers for subscriptions and number one I'm very happy to begin calling our subscription revenue subscription versus license.
Like we've come into the current century now.
But we get subscription from to two areas. One is we get a subscription fee for managing devices and of course, we get it for the seed software.
And both of those will be important contributors as we look forward.
And we begin to see more devices coming back online as we hope offices return to some normalcy in the second half of our year, we have a lot of seed activity going on now as operators are more confident and beginning to look at expanding that and also in the second half and into next year Youll begin to see.
Some of the additional modules, which we will charge additional subscription fees were coming online and beginning to get those small impact in this fiscal year, but should be stronger in the next year and also remember we get a subscription fee from our new yoke product. While the numbers are small now we are beginning to accelerate.
The release of version two very soon.
And youll begin to see that contribute as well so yes connections reactivation seed and yoke will all drive the subscription line for the remainder of this year and really begin to contribute in FY 'twenty three.
Okay got it.
Yes.
Transaction volumes are above pre COVID-19 levels I guess.
Office category I think is generally lag maybe can you give a little update on.
Patterns in the office you are seeing.
Yes, I think that.
What most operators are telling me is I've spent a lot of time with them as has Ravi.
They're getting more and more confident what theyre unsure of is kind of when people return to the office exactly what that looks like.
In some cases people will come back and maybe in the office fully for five days a week in some cases operators are telling us that it's two to three days with the operators have learned is to ask what's coming back to the office means to you and how that they then will react to that so we had planned for this year in our guidance a gradual return to the office.
And I think we will begin to see that in January.
We're of course very interested to see kind of weather the osha announcements today begin to drive that.
An increase in velocity I think everyone has a different view on kind of what being back in the office looks for our businesses going forward. Most operators that I talk to say that it will probably take at least through calendar 'twenty, two if not well into calendar 'twenty three before we see kind of fully back in the offices, but thats, what we plan.
For in our guidance.
Got it okay. Thanks.
Okay.
Your next question comes from the line of Gary Breast Athena from Barrington Research. Your line is now open good afternoon, Hey, Sean when you were talking about volumes picking up on the last question is that transaction volumes, you said, they were up 30% sequentially or 30% year over year as the dollar volumes.
Year over year.
And dollar volumes I believe we're up that number Wayne <unk>.
Hey, Gary So dollar volumes are up 36%.
Number of unit volume is up 28%.
Yes.
Okay. That's great and then you mentioned that.
With European seed you have a unique solution for the micro markets could you could you maybe just elaborate a little bit on that.
What you can do in the market versus some of the competitors out there.
Well I think when you look at it from the point of sale device, Gary we didn't have an offering there so bringing that strengthens our offering and when you look at seed markets.
What we've been told and what we've seen is that we think thats the leading product in the market. So the combination of the two brings together a strong point of sale offering.
Along with the best.
Seed markets product.
Strength of seed as we service all part of the operator's business and it's an area that we'll be investing in a lot to combine the yoke platform with the seed markets to build out differentiation going forward.
Does your competitor <unk> has the same capabilities.
With Pos and.
Software.
Are you the only one out there in the market with us.
<unk> does not have the software capability that we have they.
They do have the point of sale.
They are.
Just getting started in micro markets as we are.
Okay.
As a reminder to ask a question you will need to press star one on your telephone again, that's fine and then the number one for you to ask a question.
Your next question comes from the line of George Sutton from Craig Hallum. Your line is now open.
Thank you Sean I wondered if you could walk a little more through the ENV enablement in terms of the push and pull of hardware.
And other services that you are trying to offer is that process is taking place.
Sure George Thanks, that's a great question so <unk>.
Most of the devices that we've shipped.
Over the recent years and months are all ENB compliant.
And be Noncompliant devices are mainly older devices that are out there many of which may be <unk>. So they kind of fall in line with the <unk> upgrade.
And others, where the swipe and dip is ENB compliant, but the touchless part isn't.
So the exposure is much less than what we saw with <unk> <unk>.
But some very large customers and really across the full customer base and we're working with them to get them.
Fully <unk> compliant and as I said in the text, we already have the most devices out there that ENB compliant. We're just working with the with the ones that we need to either upgrade to.
New device or.
And over the air upgrade or a bezel upgrade in some cases.
Got you so something that we continually hear when we're doing channel checks and has never been discussed on the call are.
The remote price change capability that you've built in seems to be very well received.
Are you charging for that how is that driving additional business for you.
We just thought it deserves some attention given what we're hearing out there.
Yes, so I'm going to ask Ravi to past that because he is the RPC expert in Eni, but on the road a lot talking to operators about that so Ravi you want to talk about RPC and George you're absolutely right. It's a much demanded features especially with inflation and the need to sort of react to.
Suppliers changing prices for our customers in them.
Passing that on the way we plan to charge for it is typically on them.
Price per month basis, so, it's a classic kind of add on that.
Play there that is in addition to the module that we will move.
We will provide our customers and charge on a per device per month basis.
Perfect. Thanks for the help guys I appreciate it.
There are no further questions at this time I will now turn the call back to Sean Feeney. Please go ahead.
Thanks, operator, as I said at the beginning we are off to a strong start for fiscal year 2022, I know Tonight is a busy earnings night and we appreciate your attention and look forward to talking to you guys either this evening or over the coming weeks with all with many other investors. We're excited about what we're doing and.
Looking forward to a great year. Thank you.
This concludes today's conference call. Thank you everyone for participating you may now disconnect.
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