Q2 2022 Cantaloupe Inc Earnings Call
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And the conference over to your speaker today Derek.
<unk> Investor Relations. Please go ahead.
Thank you and good afternoon, everyone welcome to the <unk> second quarter earnings Conference call with me on the call today is Jon Feeney, Chief Executive Officer, Ravi. Thank you, Jason Chief operating Officer, and <unk> Jackson, Chief Financial 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 because of certain factors, including but not limited to business financial market and economic conditions, a detailed discussion of the risks and uncertainties that could cause 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 to not take place you should not place undue reliance.
Any such forward looking statements, which reflect managements view only as of the date. They are made cantaloupe undertakes no obligation to update any forward looking statements, whether because of new information future events or otherwise. This call will also include a discussion of certain non-GAAP financial measures that we believe are useful for among other things evaluating.
Cantaloupe operating results.
Sure.
non-GAAP financial measure measures are supplemental to and not substitute for GAAP financial measures that does net income or loss detail of these non-GAAP financial measures and 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 measure.
It can be found in our press release issued this afternoon, which has been posted on the Investor Relations section of our website at Www Dot cantaloupe dot com and with that I would like to turn the call over to Chief Executive Officer, Sean Feeney Sean.
Good afternoon, and thank you for joining US today, we're pleased to report record revenue results for the quarter and confirm we are on track to deliver a strong year.
Second quarter top line revenue grew 33% year over year, driven by double digit growth in all revenue categories equipment revenue led the way with growth almost doubling compared to last year's Q2 transaction revenue continued to rebound with 31% growth year over year and subscription fees grew.
<unk>, 13% year over year. This was the third quarter in a row that we posted double digit topline revenue growth compared to the equivalent quarters in prior periods.
A few other highlights from the quarter include a 31% in total dollar volumes another record 16% year over year increase in active customers in the second quarter subscription and transaction fees grew 24% a record for the third consecutive quarter.
As evidenced by our results our customers understand the value proposition of our products and services. We continue to be focused on enhancing our customer service as well as providing operators ways to engage their customers and optimize their businesses. We believe our existing customer base represents the largest opportunity.
This scale recurring revenue and connections.
I'd like to share just a few of the examples of customer expansion from this quarter.
Refreshing USA, a national independent vending operator purchased thousands of new cashless <unk> devices from us during the quarter.
Admiral beverage Pepsi Bottler continue the theme, we are seeing of converting acquired businesses to cantaloupe services and extending their agreements.
And Continental Cafe purchased several thousand devices, and we will continue to expand seed software to their latest acquired company a notable new customer win in the quarter was the addition of Larsen vending, which <unk> purchased its first <unk> during Q2.
To continue to build on our sales momentum. We recently brought in payment services veteran Jeff <unk> as Chief revenue Officer, Jeff comes to US with over 20 years of experience building and scaling high performance sales organizations and payments and technology globally.
During this time at Verifone. He served as executive Vice President of Europe , Middle East Africa, and Asia Pacific where revenue more than doubled during his tenure.
I believe cantaloupe will benefit from his vast industry and international expertise and I'm confident he will continue our positive momentum, particularly outside of the United States. We.
We've continued to make progress on building self service capabilities and improving the customer experience across service delivery and support.
Over the past 12 months, we've doubled the customer services team in minimizing hold times and improving problem resolution times.
We've automated certain customer service tasks, including device the activation transfers and callbacks as I am out visiting customers I'm hearing feedback that they are seeing results from our focus on improving customer service, which strengthens these relationships and leads to increased sales.
We also continued to develop exciting new initiatives to enable our customers to increase revenue through new modes of payment and additional consumer engagement functionality as well as new business tools for running a more efficient operation.
I would like to turn the call over to Ravi Venkataswamy, whose promotion to Chief operating officer was announced in today's earnings release Ravi.
Sean.
Consumers are exhibiting a high demand for fast simple and seamless digital experiences in all areas of commerce, including the unattended retail space that we are focused on.
To address these needs we shipped over 14000 E engage devices during this quarter.
This is our next generation touch screen interactive device, which has been very well received by our customers.
We also launched our campus card product that give students the capability to use a virtual card from their apple wallet to make purchases at our equaled enabled vending machine.
This is helping drive usage and engagement with the student community and benefit our customers as universities and campuses by driving up same store sales for them.
Our recent release of the yolk micro market version two includes significant upgrades to.
The operator as well as the consumer experiences on the Youll point of sale.
<unk> App and the your quarter.
Customers now have greater flexibility to drive consumer engagement and loyalty with <unk>.
Hansman two hour deals promotions and reward programs.
This along with kiosk and consumer management tools ensure that the Europe markets product is better serving consumers and simplifying the self checkout process.
Micro markets continue to be the fastest growing segment of the unintended retail industry. A trend. We expect will continue as more and more businesses shift to touch let's commerce.
We recently completed a survey, which found that more than a third of consumers.
The ages of 18 and 54 on crypto currency.
Further 67% of those who own crypto are willing to use it for purchases.
We're linked to a mobile wallet.
With the popularity and ownership of crypto currency growing.
Work on solutions to enable their use through our partnership with back.
We're also partnering with the card networks and our customers to transition to <unk> compliant devices, which enables more secure touchless payments as a reminder, we have the most <unk> enabled devices in the markets we serve today.
We've also continued to invest in developing additional services and solutions.
Enable our customers to operate more cost effectively.
This is critical for our customers in light of today's tight labor market.
Lack of labor availability.
A handful of highlights from initiatives this quarter.
We launched a new warehouse app, enabling warehouse staff to easily manage product purchases transfers and take inventory all via a mobile or tablet device.
We added additional customers to the final pilot for a little more price change product and expect to execute a full rollout in the first half of this calendar year.
Customer demand and interest levels in this product are particularly high, especially due to tight labor and inflationary market condition.
A few weeks ago, we announced a partnership with hybrid which will provide customers with artificial intelligence powered merchandising capabilities.
Powerful new product recommendations targeted space to sales optimization are all enabled using <unk> proprietary algorithms to boost the topline of catalog customers and improve operational efficiencies.
This will empower our customers to react in real time to the way consumers shop and drive increased same store sales.
We are seeing a lot of interest and already have multiple customers piloting this program.
I'd now like to turn the call back over to Sean.
Thanks, Ravi on the International front, we recently unveiled our international partners program aimed to drive market penetration and unattended retailers with unintended retailers outside of the United States. We look forward to providing an update on this program in the coming quarters. We also continue to work on improving operations within the company.
We've gone live on two large projects first we have implemented net suite consolidating our two ERP systems onto one platform.
Also our configure price quote project has gone live and contributed to our strong Q2 sales performance, we continue to invest in internal systems to provide future operating leverage.
As you may have seen in our earnings release, we announced some changes to our executive team. In addition to <unk> promotion waned.
Wayne Jackson has decided to retire from cantaloupe, making way for the promotion of Scott Stewart, Chief Financial Officer effective Tomorrow February 4th.
Wayne and Scott have partnered to transform our finance operations and updated our financial reporting systems over the next several months Wayne will work with Scott and me on the successful transition and other strategic initiatives.
Also I would like to welcome Ian Harris to our board of directors, Ian as a senior analyst at Hudson Executive capital, our largest shareholder and has been a valuable resource to both myself and the board of directors since I joined in May 2020.
I would like to thank Doug Braunstein for his many contributions to this company and board over the last three years and look forward to our continued engagement in his role as founder and co managing partner of Hudson Executive capital, which will continue to have two representatives on the board through Ian.
And Doug Bergeron, our chairman.
With that I would like to turn the call over to Wayne to go over the financials in greater detail Wayne.
Thanks, Sean and good afternoon, everyone. During the second quarter, we continued our trend of strong year over year revenue growth attributable to increases in transaction volumes as well as demand for our devices as the industry fully migrates to <unk> technology.
As a reminder, last quarter, we began disclosing a breakout of subscription and transaction revenues.
We also 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 reflects in more detail, how we manage our business.
Q2, FY 'twenty two revenue was $51 1 million, a 33% increase year over year, driven by subscription and transaction fees of $41 2 million in equipment sales of $9 9 million.
Transaction fees grew 31% in the second quarter, which was a company record.
Subscription fees increased 13% year over year.
The 24% increase in subscription and transaction fees year over year is primarily driven by approximately 31% increase in total dollar volumes for Q2 2022 compared to last year.
And we are currently exceeding pre pandemic levels of processing volumes.
Equipment revenue for the second quarter increased 95% year over year as many customers held off on delivery of <unk> devices.
G upgrade devices until closer to the discontinuation of the <unk> network support starting in 2022.
Due to this we expect equipment revenue to continue to increase through the end of 2022 calendar year.
As a reminder, Q2 and Q4 are historically, our strongest hardware sales quarters.
Active customers increased 16% year over year to 21 315 customers.
Active devices totaled $1 1 million as of December 31, 2021, an increase of 4% year over year.
Total gross margin for the quarter was 31% down from 32% in the prior year fiscal second quarter. The decrease in gross margin was primarily due to a change in revenue mix of higher transaction fees during the second quarter offset by an increase in the gross margin on equipment sales.
Subscription and transaction revenue margin was 39% versus the prior year quarter's margin of 38%.
Equipment revenue margin for Q2, FY 'twenty, two improved to negative 3% from negative 6% in the prior year.
Total operating expenses in the second quarter.
Totaled $16 3 million compared to $14 9 million in Q2, FY 'twenty one.
The change in total operating expenses reflects the company's objective to reduce general and administrative expenses and utilize these savings to invest in innovative technologies to acquire new customers and expand our footprint with existing customers.
Net loss applicable to common shareholders for the second quarter was $5 million or <unk> <unk> per share compared to a loss of $2 9 million or <unk> <unk> per share in the prior year period.
Adjusted EBITDA was $2 $4 million in the second quarter compared to $1 million in the prior year period.
Relating to our balance sheet and liquidity, we ended the second quarter with cash and cash equivalents of $76 $3 million.
Turning to our fiscal year 2022 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 to continue to grow based on increased dollar in transaction volumes as well as incremental subscription revenue from new and existing customers.
While we expect equipment revenue to.
To grow in the second half of 2022, it will be more weighted to the fourth quarter.
Net loss applicable to common shares is expected to be between five and $7 million.
And we expect adjusted EBITDA to range between $8 5 million and $10 5 million.
Yes.
Given the continued supply chain challenges and the need to build our inventory levels whenever possible. We now expect cash flow from operations to be between breakeven and negative $2 million for the year.
Finally, I have greatly enjoyed working with Sean and the leadership team.
As much has been accomplished since the current leadership team has been in place.
As I transition out over the next several months.
<unk> is well prepared and has the right person to help drive continued success for cantaloupe in the future.
I will now turn the call over to the operator for Q&A.
Operator.
Yes.
Thank you.
To ask a question at this time, please press star one.
You touched on the phone and to withdraw your question from the queue. Just firstly pelkey once again star one for questions one moment for questions.
Our first question will come from the line of Mike Latimore from Northland Capital you may begin.
Great. Thanks, Yeah, congratulations on the nice results here.
And Wayne very nice working with you best of luck in your next venture there.
Thank you Mike.
So I guess on the.
Subscription and transaction gross margin seem very solid was up sequentially is.
Is that kind of a good.
The number to think about for the rest of the year.
Hi, Mike This is Wayne.
It is yes.
Yes. The answer is yes, and the reason for that is we're going to continue to see the transaction volumes at about the level, we are and we fully expect to see.
Friction revenue continue to grow.
Got it and at the gross margin should be similar going forward.
Yes, you're asking about the rest of this fiscal year, yes, yes, okay great.
And I.
I think you touched on a little bit, but your new CFC IRR well it sounds like international is a big area of emphasis maybe what would be his other kind of top two areas of focus there.
Well as I said, Mike we're very excited to have Jeff on board, Jeff had a long and distinguished career at Verifone and several other places most recently boost payments.
National is absolutely an area that we're looking to expand into and Jeff has a network and strong relationships there to do that.
Secondly is driving subscription growth.
Driven by expanding seed.
Or now with our yoga two point O micro market. We think there is a huge opportunity there and we're launching remote price change here in the in.
In the second half and will begin charging for that and selling it on a big basis and then the last area is <unk>.
Jason markets and hiring more business development people and those those areas.
Got it.
Great and then just any.
If you could provide just a little more view into the opportunity to cross sell upsell feed into your kind of current base, how does that how does the pipeline look for that.
I'm never happy with the pipeline, but the pipeline looks good to do that and I think what we're seeing is operators turning from focus on upgrading their devices from <unk> to <unk>.
Of course now.
The card issuers are beginning to push <unk> compliance, which will be.
Another upgrade cycle, but I do believe we are beginning to see people coming out of that out of the COVID-19 kind of pulled back.
Lee.
We've we've begun to see operators.
Doing more and more M&A activity and we're happy to see there is.
We have many of those larger customers that are doing the M&A and they are converting the customers as they acquire to seed software, which is adding to our installed base as well as in many cases upgrading them from in the <unk> to <unk> <unk> from <unk>.
Competitor devices to E sports.
Okay, great. Thanks, very much thanks.
Thanks, Mike.
And our next question comes from the line of Chris Kennedy from William Blair You May begin.
Hey, guys. Thanks for taking the question.
On the subscription fees can you just talk about the growth of that should we look at it on a sequential basis growing 2% sequentially or year over year, how should we think about that line item. Thank you.
Hi, Chris This is Wayne.
It certainly has been growing sequentially that so far our goal as Sean touched on the last question is to grow faster, but I think for the remainder of this fiscal year. That's that's.
A good estimate.
But longer term more.
Okay, and then can you just dive into that longer term.
I guess your longer term goals for growing that line item.
Sure. Chris This is Sean we are absolutely focused on that and as I've talked about we believe to mikes question that we can continue to expand the penetration of of seed. We believe that we're 25% to 30% of the industry penetrated. So we've got plenty of room to go there.
We believe that RPC is going to be a very good seller and a very good product.
And we will add monthly subscription.
Per device per month than what we've seen is.
With the inflationary and prices rising.
We've seen more and more customers, calling us about that.
Third we are adding highbury as an additional module, which will be an additional per month per device fee in which we've gotten a lot of interest and we're piloting with several customers now and will launch a widespread in this half of this half of the year and then as I've said kind of.
And every call.
That Ravi has is that give us a product every 12 to 18 months that we can basically add to subscription. So if you think of a classic software subscription model, we want to add additional modules that add additional revenue on a per month basis. So.
As Wayne said for the next couple of quarters that sequential growth is probably about right, but I expect that as we move into FY 'twenty three starting in July that will continue to grow and I would expect that our subscription will continue to kind of grow and what I would.
My goal is to move it towards 20%, that's an aspirational goal and I think we can get there over the next 12 months to 24 months.
Very helpful. Thank you and then can you just go into a little bit more of your efforts to diversify beyond the core vending market, whether it's micro market micro markets or.
EV charging whatever it is thank you sure.
It's a great question and one that.
As a big part of Jeff's focus as I said the biggest opportunity for us in the near term is of course micro markets and what we're seeing with many operators as they are adding micro markets and then redeploying venue vending machines and other locations. So we believe that micro markets is not necessarily a replacement, but a lift.
To that subscription fee and.
One of our very large customers this week showing them our micro market.
Product on the adjacent spaces, we are very focused on the electronic vehicle charging market. As you know there are a lot of players in that market, it's pretty fragmented interest.
Today, we're also focused on amusement and seeing that come back post pandemic and a lot of interest there.
We're also looking at adjacent markets with taking the yolk payment.
Payment platform and it works very well in unintended.
Grocery unintended convenience stores and we think that there is an opportunity there and we continue with our partners like <unk> and laundry car washes in other areas and then.
International when we get that going significantly increases our Tam and we believe there is both software and payment devices.
Primarily working through partnerships and other areas of the.
The world.
Very helpful. And then just one last one can you just remind us what the current mixes of connections pending versus non vending. Thanks a lot.
I don't know, whether we've given a number like that but I would say that vending is probably north of 80% of our total total connections.
Thank you.
Thank you once again Thats star one for a question Star one.
Next question will come from the line of George Sutton from Craig Allen You may begin.
Hey, guys. This is James on for George Thanks for taking my question.
Could you provide a little more detail on the international partnership program.
What types of partners you are looking for there I mean is it processing distribution.
And then you kind of you called out Latam as a target Geo, but can you give any specifics on sort of which countries. You think makes most sense to start off then or would you find most attractive.
Sure. So let me take the last part of that first as an.
In Latin America, we definitely see Mexico is kind of the lead.
<unk> there and our partnership program is modeled after the very successful verifone.
International Partners program, both Fernando who is our business development executive in Latin America, and Jeff were very successfully executed that and what it gives us structure for us to add potential.
Operators, who need software or want to resell our software and think of it as in many cases will be leveraging our current U S partners, whether that's five server catalyst and then local providers, who can provide payment capability that we can partner with there may be some situations, where we white label things basically to find out.
To enter into the market because we think once we're in a market we can expand it.
And we think that.
In some areas that we can we can add resellers of our current products and our partnership program. So it has many flavors, but it provides a structure for people to easily become part of the cantaloupe team and to take on our competitors and other areas of the world than just the U S.
Perfect. Thanks, guys.
And once again Thats star one for a question Star 111 for questions.
And I'm not showing any further questions in the queue I will turn it over to Sean <unk> for any closing remarks.
Great. Thanks, operator, I'd like to just add one more thank you to Wayne He has been a great partner and as you can see we've made significant progress in the time that we've been together and we're excited about the future here cantaloupe with Scott moving into the CFO role, Ravi, becoming COO and Jeff umbrella.
On board as Chief revenue Officer, So we had a very strong quarter and as I said, we're on our way to what we believe is a strong year. So thank you for your interest and we look forward to talking to you soon.
And this will conclude today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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