Q4 2022 Cantaloupe Inc Earnings Call
Okay.
Good day, and thank you for standing by and welcome to the Cantaloupe fourth quarter or for year 2022 earnings Conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question.
Sure.
To ask a question during the session unit Crestar one one on your telephone please be advised that today's conference is being recorded.
Now I'd like to hand, the conference over to your Speaker today Dara Dirks Investor Relations. Please go ahead.
Thank you and good afternoon, everyone and welcome to the Cantaloupe fourth quarter earnings Conference call with me on the call. This afternoon is Jon Feeney, Chief Executive Officer, Doug Bergeron Chairman of the boards that Scott Stewart, Chief Financial Officer, Robin Van Heusen, Chief operating officer before we begin today's call I would like to remind you there.
All statements included in this call other than the 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 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 state.
<unk>, 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 cantaloupes operating results. These non-GAAP financial measures are supplemental to and not substitute for GAAP financial measures such as net income or loss.
Sales of these non-GAAP financial measures.
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 Dot Cantaloupe dotcom.
That I would like to turn the call over to Sean.
Yeah.
Thank you Dara good afternoon, and thank you for joining us today.
For the past two years, we have been working on a fundamental transformation of the company and today I am excited to report strong results for Q4 and for FY 2022, showing continued momentum behind our strategy.
First on Q4.
Our revenue during the quarter was $58 million up 18% over last year's fourth quarter.
This marks an all time high for total quarterly revenue and is the fifth successive quarter, where we posted double digit revenue growth.
The strong finish to the year was driven by 17% growth in combined transaction and subscription revenue and equipment revenue growth of 22% during.
During the quarter. We also grew active customers by 21% and active devices by 4%.
Adjusted EBITDA for the quarter was 2 million compared to $5 million in the same quarter of the prior year as a reminder, prior year benefited from a $2 9 million adjustment to our sales tax reserve due to a state law change.
Now a few highlights for our annual results for the full fiscal year, we reported a 23, 23% increase in revenue to 205 million.
So a new company record and delivering on the initial guidance. We provided last September despite a slowdown in transactions during the winter.
Months due to the resurgence in COVID-19.
Our adjusted EBITDA was $9 9 million for the year up 30% over last year's $7 6 million again delivering on the initial guidance. This was driven by our strong revenue growth and disciplined expense management. We also managed our inventory and supply chain aggressively and effectively.
Throughout the year, we utilized our strong balance sheet to build up our inventory and ensure we could meet the demand of our large and growing customer base, particularly during the <unk> and <unk> hardware upgrade cycle.
And with that I'd like to turn the call over to our chairman Doug merger on for a few words Doug.
Thanks, Sean.
I'd like to take this opportunity to congratulate Shaun and the senior leadership team on the quarter and on the fiscal year results.
Shawn has played a pivotal role in cancer, while delivering consistent growth and profitability over the last two years.
I feel more confident than ever in the strength of the company's foundation and the talent, we've been able to recruit.
Positioning us for long term growth.
Today, we are announcing that Sean will retire at the end of September .
That is part of our planned succession, our COO Ravi Venkataswamy will take on the CEO role on October one.
Ravi will also be appointed to the board of directors at that time, replacing Sean.
During his time as COO Ravi developed a compelling vision for growth and launched a number of new products proving that he is the right person to lead cantaloupe as we look to expand internationally into adjacent markets.
He is known to many of our investors.
We have not yet interacting with him you'll get a chance to beat him as well as other members of our leadership team in person at an Investor day, which the company will host in New York City on December 12.
And with that I'd like to turn the call over to Ravi Ravi.
Thank you Doug and thank you Shaun.
I'm excited and humbled by the opportunity to lead this great company to the next phase of growth and development.
It's been an incredible turnaround under Sean's leadership over the last two years and I'm very grateful for the mentoring and thoughtful preparation for this role that I've received from Sean.
The self service economy is still at an early stage.
Very excited about cantaloupes capabilities, and our market position that allow us to capitalize on secular tailwind in this space.
We have worked with the board external partners and the leadership team on our longer term growth strategy.
You will hear more at our Investor day that Doug mentioned on December 12.
We will take investors through this multiyear strategic plan in more detail.
The last year was one off reigniting innovation, which led us to launching a number of new products.
Just to name a few.
We launched the engage and engage combo interactive devices that combine card reader functionality and kilometers into a single unit with a full touch interactive screen.
We have a rich roadmap of features that build upon the interactive capabilities and will launch in the coming quarters and years.
We have already shipped over 43000 of these devices.
In fiscal year, 2022, and we see continued momentum this year.
We enhanced feed sink and innovative tool that customers are capitalizing on to accelerate the rollout of seed across their operations.
For example, prestige a large operator was able to rapidly onboard 5000 vending machines after an acquisition, giving them instant enterprise wide visibility.
We are pleased with the reception to our new catalog one platform.
First of its kind bundle subscription model that enables retailers to future proof their business.
Eliminate capital expenditures on new hardware and reduce the risk of hardware obsolescence with zero upfront purchases.
This has allowed us to deepen our reach within the SMB market bed upfront capital is a greater consideration and purchase decisions.
Our remote price chain solution launched at the Nama Industrial conference in April provides customers the ability to manage pricing on demand react to supplier increases and merchandise dynamically one of our clients Continental services noted that.
At our largest college campus it would take three weeks to change prices now it takes three days.
In summary, the results of our innovative and flexible product launches and improvements to the catalog platform are enabling more partners to capitalize on the incredible opportunities in the self service economy.
Moving to sales.
Added additional resources to bolster our leadership position in the U S, which is showing dividends.
In the most recent quarter, we were able to expand our enterprise level relationships with continental services.
<unk> in reach and Pepsi bottling ventures.
<unk> the range of products and services that they purchased from catalog, including our secure <unk> ENB compliant payment systems, our transaction processing services as well as our cloud software platform.
Our lead with feed strategy.
Selling our full suite of cloud software solutions helps us to create more meaningful relationships with customers, who rely upon seed for managing critical areas of their business operations.
Another recent C.
New customer win is essentially organic lending who have gone all in with catalog, including add ons for hybrid <unk> and are more price change.
We are also seeing positive momentum with wind back for example, Allison industries was a longtime seed customer who had left for a competitive solution.
Within 12 months, the return to cantaloupe seed platform and broad 1100 of their connections onto a cantaloupe one bundled subscription service.
With the addition of Jeff <unk> as our Seattle, we've expanded our distribution channels to accelerate growth.
For example, we've renewed our contract with the Veterans group.
Key cantaloupe reseller with recently ordered thousands of our connected devices.
Beyond new products, and adding to our sales and service teams. We continue to focus on driving long term operating leverage and during the year. We invested further in improving the G&A side of our business as well as our internal systems.
In July we migrated both our payments and Iot platforms to the Amazon Web services cloud.
This migration gives our network best in class stability, and reliability and an easier path to replication in international markets and.
In addition, we have completed our conversion to fiserv, which will also deliver future cost savings.
We continue to strengthen our leadership team and I am happy to announce that Gaurav Cingal, we're joined cantaloupe as its new Chief Technology Officer on September 12.
Gaurav joins catalog from the Georgia Lottery Corporation, where he was the executive Vice President and CIO responsible for a comprehensive digital transformation.
As other experiences, including serving as the CPO for the last mile at <unk> logistics, a vice president of technology at Goldman Sachs and a former founder of a technology startup.
Gaurav has extensive experience scaling technology companies and driving innovation.
Cingal graduated from the Indian Institute of Technology at Delhi, with a degree in chemical engineering and a masters in computer science from the University of Illinois Chicago.
I'll now turn it over to Scott to review the financials and our outlook Scott.
Thanks, Ravi during the fourth quarter as Sean mentioned, we achieved another quarterly revenue record.
Q4, FY 'twenty two revenue was $58 million, an increase of 18% year over year. This was driven by subscription and transaction fees of $44 9 million in equipment sales of $13 1 million.
Our combined transaction and subscription revenue grew 17% and our equipment revenue grew 22% compared to the same quarter in prior period.
Also marks our fifth consecutive record high for quarterly transaction revenue and total dollar value of those transactions on our platform.
Total gross margin for the quarter was 29, 5% slightly down from 32% in prior year.
Fiscal fourth quarter due to revenue mix subscription and transaction revenue margin was 39, 5% flat year over year, while equipment revenue margin was negative four 6% in Q4 dollars 22 compared to a negative two 3% in the prior year we.
We have continued to improve gross margins on transaction revenue, which is now in the mid teens.
Total operating expense for the fourth quarter of 2022 was $19 2 million compared to $15 2 million in Q4, FY 'twenty one.
Call that in the fourth quarter of 'twenty, one reported opex benefited from a onetime sales tax accrual reduction of $2 9 million due to a state law change.
Net loss applicable to common shares for the fourth quarter was $2 1 million or <unk> <unk> per share compared to net income of $2 7 million or <unk> <unk> per share in the prior period.
Adjusted EBITDA was $2 million in the fourth quarter compared to $5 million in the prior year period as previously mentioned the prior year benefited from a $3 $9 million adjustment to our sales tax reserve.
Related to our balance sheet liquidity, we ended the fourth quarter with cash and cash equivalents of $68 million. The sequential decrease is due to the increase in inventory on hand by $14 million.
Early in the year, we made a conscious effort to increase our inventory to safeguard our customers. This gave us a competitive advantage at a time when supply chain issues were affecting our competitors' ability to service customers.
Now turning to 2023 guidance based on what we see today, we expect the following.
Total revenue to be between $225 million and $235 million representing growth of 10% to 15%.
A combination of transaction and subscription revenue will be between $191 million and $198 million representing growth of 13% to 17%.
Total U S. GAAP net income to be between $1 million or $5 million total adjusted EBITDA to be between $12 million $17 million total operating cash flow to be between $10 million $15 million.
We expect equipment revenue to be relatively flat year over year, but skewed to the first half of the fiscal year as we concluded the <unk> upgrade cycle.
Conversely, we expect transaction and subscription revenue to ramp sequentially throughout the year.
With that I'll now turn the call over to the operator for Q&A operator.
Thank you Adam.
<unk> you will need to press star one one on your telephone.
Once again Thats Star one one please standby will compile the Q&A roster.
Our first question comes from the line of Chris Kennedy from William Blair. Your line is open.
Hey, good afternoon, and thank you for taking the question.
Doug can you talk about.
I remember the first call you are on you talked about.
Long term confidence in the business growing at least 30% and generating at least 20% operating margins can you just give your updated thoughts on those.
Long term objectives.
Yes, I mean, we're almost built in a day, but Ravi pointed to the fact that.
A lot of the.
Business now is positioned to get great operating.
Leverage.
I see.
I am the chairman and CEO , but I'd see transaction and recurring software to be safely growing in the mid teens.
As we get more traction in new geographies.
Which we're working diligently on.
There'll be upside to that.
Equipment growth as we said it should be flat.
The razor and razor blade model, you need to not only get those close.
Systems out there and upgraded and new territory established in order to sell the software stack that we have and the transaction stack that we have on top of them, but I think the business is.
It's positioned for growth will continue to invest in.
Great sales and marketing talent, great product innovation et cetera.
I don't know what the margin structure looks like where we're positioned for profitability.
More profitability next year than this year. This year was more than last year. So.
Depending on how long you want to.
Plot the curve I see no reason why.
Profitability Shouldnt continue to go up over time.
Great. Thank you and then Ravi if you could just congrats on the new role can you just kind of talk about your key priorities as you enter to the new position. Thanks, a lot guys.
Thank you Chris.
And good question there.
Look the priorities have been established over the last year I would say and as I mentioned, we've worked with the board and Sean and other external partners on a very robust strategic plan with a much longer term outlook. So the priorities are going to be to start executing the discipline on that and make sure that the execution.
Matches up to the strategy in which case there is a lot of value to unlock.
Okay. Thank you.
Thank you one moment for our next question.
Our next question comes from the line of Mike Latimore from Northland Capital. Your line is open.
Alright, Thanks, Ken Congratulations Ravi and Sean for your.
New roles.
Sure.
So I guess, maybe Ravi on.
On the subscription.
Business here, what do you see as the <unk>.
Main drivers of subscription kind of growth. This year I know there are several there maybe what would be the top.
Two or three let's say.
Again, great question, Mike and always a pleasure to hear from you look at the subscription growth as Doug pointed out it's a little bit of the razor and razorblade model. So the more we get our connections out there that match really drives subscription growth in terms of software that we layer on top of.
That in addition, we've also diversified the range of add ons with the remote price change product the artificial intelligence based merchandising product and we have a number of those in the pipeline. So as we layered on more of those what Youll see is subscription growth is driven by.
Two different levers one is continued connection growth and the secondary increase revenue per connection because we are now putting more add ons on top of each connection.
And Ravi I'll, just ask Mike I'll, just add to that a little bit. So we're also expecting to see a lot of growth out of our cantaloupe one program as well we've seen really good results, thus far and we expect that's going to continue through the year.
Okay very good.
And then.
I think you said you have all your customers migrated to fiserv now.
I guess.
Yes that should help gross margin I imagine, but how should we think about subscription and <unk>.
<unk> gross margin this year.
Yes. So overall as we mentioned on first on third quarter that were in the mid teens for the gross margin on transaction revenue, we expect that to continue.
Overall, we are seeing savings from the migration that we had advisor we've also worked.
On some other cost saving measures such as renegotiating some of our contracts and get some additional incentives. So we expect that to maintain within the mid teens and maybe improve a little bit more as we go through the year and then on the subscription side and we've always said we're in the 80% to 85% of typical software margins, we anticipate that to remain as well.
And I would add as a reminder, that on the transaction side.
On the one hand, we are continuing to expand that gross margin on the other hand back margin drops directly to the bottom line. There is no incremental G&A associated with it so it's pretty attractive revenue and margin for us as a business.
Yes, Okay makes sense.
Thank you.
Okay.
Thank you and as a reminder, that star one one for any questions.
For next question.
Our next question comes from Gary <unk> from Barrington. Your line is open.
Hey, Joe Good afternoon, everyone.
Couple of questions here.
Yes.
Yes, it looks like the equipment sales are not going to be as dramatic as last year, but as you come out of this <unk> upgrade you said the back half of the year and will be I think a little flattish.
We will use still.
To be selling this equipment at a negative margin given that the upgrade is over at this point.
Gary as we get past the upgrade we think margins will come back up and that that imperative of having to sell them at.
Breakeven or negative margins should no longer be there now as we go into international geographies and into new adjacent market, there are always opportunities where strategically.
They do bigger deals, where we subsidize that margin a little bit to get the recurring revenue on the back side of that.
Okay.
And then with the Cantaloupe, one platform if I remember correctly.
You will actually own the device on your balance sheet is that is that correct.
We're not selling okay, youre not selling this device and then selling it to a third party so about.
About how much are you guys. If you don't have to give you an exact number but how much.
On a cost basis is it costing you more these devices to put out there.
Gary we don't disclose those numbers for competitive reasons.
But I mean, you kind of piece it together based on the margins you've had et cetera, but.
There is.
There is a lot of sensitivity around around those numbers with respect to that.
The situation.
Both the supply chain situation as well as competitive situations.
Okay, I'm, just trying to get an idea of what your your outlay on a capital basis is going to be as you grow this product.
Just a couple of others.
And sorry, just to jump in real quick just to let you know when we do make that a lot better margins on the cantaloupe one program. So I want to be very clear on that so in our margins.
For the year on equipment were around negative three 5%, but with the catalyst one that there are a lot more on the positive side.
Okay better margins. So that's great and then lastly.
Okay.
I wanted to ask your customer counts look like they were up 21% year over year. The active devices were only up 4%. So I guess did you sign a whole bunch of new customers in Q4 or the back half of the year that do not have active devices out there or are you just signing a bunch of smaller <unk>.
<unk>.
No Gary what happens there is as we navigate the upgrade cycle that <unk> and the <unk> upgrade cycle.
We replace existing equipment that doesn't increase our active device numbers right and and as we as we as we start getting out of that Youll see it skew much more towards the active devices keeping pace.
The good news side of the story is that in spite of.
Moderate growth in active devices. There is a more significant growth on the revenue year over year as well as the active customers and that should tell you that we are the strategy of layering add ons is starting to be successful to be able to drive more revenue per connection.
And then Gary Thank you bye now.
Our sales to the.
SMB market are at higher margins as well.
Okay. Thank you so much.
Thank you.
And I'm not showing any further questions in the queue I'd like to turn the call back over to Rob for closing remarks.
Thank you operator.
Once again like to thank Sean for his contribution and just say how excited im about the opportunity to lead catalog.
Look forward to speaking to many of you over the next few weeks and then reporting our first quarter results in November .
I hope to meet many of you at our Investor Day on December 12, where we will review our growth strategy and longer term goals in more detail.
Have a great evening.
This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great. Okay.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Okay.
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