Q1 2024 Cantaloupe Inc Earnings Call
Ladies and gentlemen, thank you for standing by welcome to Cantaloupe first quarter fiscal year 'twenty 'twenty four for earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question.
And the answer session to ask a question. During this session you will need to press star one on your telephone you wouldn't hear an automated message it bites in your hand as rates change.
Your question. Please press Star one again, please be advised that today's conference is being recorded.
I'd like now to turn the conference over to Dara Dirks Investor Relations. Please go ahead.
Thank you Michelle good afternoon, everyone and welcome to the Cantaloupe first quarter earnings Conference call with me on today's call are Ravi if I can get that then can Thompson, Chief Executive Officer, and Scott Storer, Chief Financial Officer before we begin today's call. We would like to remind you that all statements included in this call other than statements of historical facts are forward looking.
In nature actual results could differ materially from at the kind of contemplated.
That was contemplated by the forward looking statements because of certain factors, including but not limited to business financial markets and the economic conditions, a detailed discussion of the risks and uncertainties that could cause actual results to differ materially from such forward. Looking statements is included in our filings with the SEC and in the press release issued earlier today.
Listeners are cautioned to not place undue reliance on any such forward looking statements, which reflect management's views only as of the date. They are made cantaloupe makes 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 no.
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 non 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 those non-GAAP financial.
As long 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 cancel of dot com with that I would like to turn the call over to Ravi.
Thanks, Darryl and good afternoon, everyone and thank you for joining us today for our first quarter of fiscal year 2020 for corn.
During this quarter, our revenue increased 8% year over year to $62 7 million importantly transaction revenue grew 18% and subscription revenue grew 15% year over year.
Adjusted EBITDA for Q1 was seven $8 million or 246% increase over last year's first quarter.
As covered in our last call in fiscal year 'twenty four.
Christa on expanding operating leverage using a three pronged strategy.
Driving subscription revenue optimizing cost of goods sold and controlling operational expenses.
We are driving subscription revenue through the following initiatives.
First by accelerating growth in micro markets, where.
We continue to see strong demand in the micro market segment for catalogs offerings.
Two notable wins include P D foods.
Full line vending micro market and office coffee provider based in Florence South Carolina.
Pyramid foods, a full line bending and micro market operator based in garages will Missouri.
Our traction in the small business segment continues to accelerate with the adoption of micro markets.
In Q1, we saw several small business operators.
She is one micro market setups from us, including Geos coolers cabinetry and fixtures.
A b C venting and operated out of Illinois.
New markets with Cantaloupe, and also took advantage of our upgrade program.
We're excited about the momentum and continued interest from our growing base of small business customers.
We're also seeing opportunities with new location types for our micro market portfolios.
For example, anytime fitness in long Beach, California is adding micro markets as a new many before it's Jim members.
Secondly, we are driving subscription revenue through the penetration of <unk> software.
We've seen continued adoption of our seed software in particular the market addition.
Seed market is becoming the industry standard for combined management of venting micro markets and office coffee within one platform for ease of routing warehouse management and driver efficiencies.
New <unk> deployments include Bvs canteen.
Valley Venting and pallets lending went all in with Cantaloupe software in Q1.
Currently adding new products is also helping us drive subscription revenue.
We're seeing traction with our newest product smart coolers, which we recently showcased at this year's <unk>.
Yes, sure in Atlanta, as well as the best tool show in Mexico City.
Our innovative smart store solutions, such as cooler cafe and Smart Cafe.
Allow consumers to make a payment unlock the cooler grab their items and walk away.
Our advanced technology provides greater security for the store owner and a faster frictionless buying experience for the consumer.
We're also experiencing progress with new original equipment manufacturers and partners integrating cooler cafe kits and our smart lock technology.
Finally, we continue to innovate with catalog one.
Our catalog one platform continues to grow penetration in the mid market and is serving as a great benefit for operators, who want to bundle the purchase of new card readers from catalog with seed software.
Two recent wins, where larson bending and Cam.
I also want to share some exciting updates on progress with our international expansion.
We hosted a successful launch event in the U K on the 20th of September with over 100 prospects partners and industry professionals.
And are pleased to report a high degree of interest and excitement for our products and services.
<unk> next generation technology, including full digital screen retrofit doors for vending our coolers.
Age verification enabled smart coolers.
And smart lockers.
This event allowed us to showcase our innovative solutions to the European market.
We also highlighted our commitment to bringing the best most reliable solutions to customers and partners alike in this market.
We've also been adding new international customers, including Bechara bending out of the UK.
Ordered 700 devices.
In Portugal, we implemented catalogs cashless payment technology on club Masters Golf Ball Dispensers, which is another great example of product market fit in Europe.
And in an adjacent vertical.
Our second priority for fiscal 'twenty four is to optimize cost of goods sold.
In Q1, we improved margins on every revenue line compared to the prior year.
Transaction margin continued to benefit from the cost optimization and price standardization, we put in place.
We reduced network fees, which improved subscription margins and equipment continued to benefit from a more stable pricing environment.
Our third fiscal year 'twenty four priority is maintaining discipline on operational expenses in.
In Q1.
Opex declined by 5% compared to the same period in the prior year and we saw a notable improvement in G&A, which declined 10% year on year, driven by decreased infrastructure and professional services costs.
We also completed the integration of the three square market business in Q1 into our enterprise financial systems.
Fiscal year 'twenty, four will benefit from our fiscal year 'twenty three initiatives, including migrating to the AWS platform for cloud infrastructure.
Integrating salesforce netsuite and other IP infrastructure improvements across the organization.
I am pleased with the strong start to the fiscal year and I'm excited about the future of catalog as we execute on our vision to be the global technology leader that powers self service Commerce and <unk>.
Want to thank the entire catalog team for their continued focus on execution, which led to a solid quarter.
With that Scott will now review, our Q1 results in more detail.
As well as review our outlook for fiscal year 'twenty for Scott.
Thanks Ravi.
As Ravi mentioned, we delivered another strong quarter of revenue growth and profitability.
Our Q1 'twenty four revenue was $62 7 million up 8% year over year.
Our combined transaction and subscription revenue grew 17% to $55 1 million during the quarter.
This includes $18 $1 million of subscription revenue our year over year increase of 15%.
$37 million of transaction revenue, an increase of 18% year over year.
The overall increase in revenue was again driven by increased processing volumes higher average transaction ticket sizes and subscription revenue growth from micro markets and cantaloupe one.
Our equipment revenue was $7 5 million a decrease of 30% compared to Q1 FY2023.
This was primarily due to prior year benefiting from the <unk> upgrade cycle that is now behind us.
While overall equipment revenue was down we did see an increase in active device growth of 4% year over year.
Total gross margin for the quarter was 38, 8% compared to 24, 5% in the same quarter last year, driven by higher margins across all three revenue lines.
Subscription and transaction revenue margin was 42, 5%.
Versus 35, 5% in prior year.
As subscription revenue becomes an increasingly larger share of our overall revenue, we expect to realize margin expansion in both.
Terms of gross profit and operating margin.
Equipment revenue margin for Q1, FY 'twenty four improved to positive 12, 2% from negative 23, 8% in prior year.
Total operating expense in Q1, FY 'twenty four were $21 6 million compared to $22 7 million in Q1, FY2023.
Net income applicable to common shares for the first quarter was $1 7 million or <unk> <unk> per share compared to a net loss of $8 9 million or <unk> 13 per share in the prior year period.
Adjusted EBITDA was $7 8 million in the first quarter compared to negative $5 4 million in the prior year period, an increase of 246%.
We ended the first quarter with cash and cash equivalents of $54 6 million and generated $6 $7 million in cash from operations.
Our capital allocation priorities continue to target profitable growth and are specifically focused on driving operational improvements to control opex, expanding our micro market offerings and investing in our domestic and international go to market strategy and product development.
Now turning to our FY 'twenty forward guidance, we are reiterating our guidance for the fiscal year.
Total revenue between $275 million and $285 million representing growth of 13% to 17%.
Combination of transaction and subscription revenue to be between $234 million and $242 million.
Representing growth of 17% to 21%.
So the U S GAAP net income to be between $9 million and $15 million.
Adjusted EBITDA is expected to be $28 million and 38.
<unk> $28 million and $34 million.
So operating cash flow to be between $28 million and $38 million.
Adjusted EBITDA will be weighted towards the second half of the year as we continue to invest in sales and marketing installation services and international expansion.
This will lead to higher SG&A in Q2, However, we anticipate these investments will drive subscription revenue throughout 2024.
With that we would now like to turn the call back over to the operator for the Q&A session. Operator. Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again please standby.
We compile the Q&A roster.
Our first question comes from Josh Nichols with B Riley Your line is open.
Yes, Thanks for taking my question, great to see the margin improvement across all the segments and good control of the operating expenses with healthy EBITDA.
Just looking here sales were up.
5% or so in the first quarter, but I know the company is targeting a pretty meaningful acceleration closer to 15% for the full year, how much of that is really attributable to international growth.
Micro markets.
Good is the visibility you guys have into the back half.
Based on some of these early stage wins you've been announcing.
Hi, Josh Thanks for the question and yes, we are very pleased with the.
Margin expansion continued.
Expansion in operating leverage which is the journey we've been on.
In terms of the growth side of the equation the <unk>.
Actually have pretty good visibility to that ramp because there is a significant backlog of micro markets as well as.
Cashless payment acceptance services, where we have sold but there is an installation backlog so that gives us pretty good visibility and that the.
The problem that we had alluded to in the last quarter around device activation timelines being longer because of labor shortages continued into our first quarter, but we've now seen that window shrink and get much closer to what is normal.
That just means that as our sales velocity, which has already been up.
<unk> is being matched by installation velocity, we'll start seeing that revenue ramp up.
Thanks, that's great to hear that you sounded like you had some good traction with cantaloupe, one I know you've been adding like $4 to 5000, or so kind of new subs.
The type of trajectory you guys are continuing to see in any commentary.
What youre seeing in terms of Upsells for things like <unk>.
Inventory management and remote price change would be helpful.
Sure. Thanks for the question Josh. So overall, we continue to see great traction with Cantaloupe, one program. The cost of capital is continuing to increase so its especially attractive in the small and mid market and it continues to be.
We're not providing the actual number of licenses that we have out there, but it has continued to grow.
At the same rates are the same percentage of what our overall equipment sales have gone up.
Great to hear thanks.
Please standby for the next question.
The next question comes from Gary Presto piano with Barrington Research. Your line is open.
Yes.
Good afternoon, Scott and Robin.
I wanted to just dwell a little bit into.
And I don't know if you mentioned it in the narrative, but you had this launch event in the U K.
And.
What really was the.
<unk>.
The focus of what you were trying to sell there was it basically micro markets or are you starting with more of individual vending machine products.
Gary Thanks for the question, it's our full portfolio of products, including cashless payment acceptance telematics that led dispensation of a product or service happened from whether it's a vending machine or a golf ball dispenser as I mentioned, a variety of different equipment, that's dispensing products or services.
Yes.
Attended as well as our seed software so its our full complement of services.
In particular, we've seen a lot of interest in Europe, with smart coolers, smart store concepts et cetera, which is which.
Which is attractive in terms of margins and very exciting in terms of being more innovative and on the bleeding edge of using technology.
Is there anyone over there right now that is offering the same kind of products.
Especially the smart coolers in.
There are other there are other competitors that offer.
These types of products, but not one single competitor that offers the full breadth of these products.
Okay.
Alright.
Thank you very much that's all I have.
Thank you.
Please standby for the next question.
The next question comes from Marc Feldman with William Blair. Your line is open.
Mark.
If your phone is on mute can you please on mute.
Please standby for our next question.
The next question comes from Mike Latimore with Northland Securities. Your line is open.
Hi, This is Logan on for Mike kind of building on that question about can hold one from earlier you guys talk about your view for the pipeline of that service.
Are you, considering adding a new capabilities refining pricing. Thanks.
Hey, Mike Thanks for the question yes.
What we have done is over time to broaden the suite of products that are offered as Argos dose cantaloupe one bundles.
Information is actually available on our website along with the pricing, it's very transparent pricing, but what's happened is over time, we're seeing more and more demand, particularly the small business segment of our customer base as Scott mentioned the cost of capital going up is driving them to look at catalog <unk>.
Instead of more traditional lease or purchase options to expand their business. So we're seeing it go from just being payment acceptance.
As to bundling software to now micro markets as well.
Perfect. Thank you.
Can you guys provide some color kind of around the growth in micro markets and how much of that coming from new logos versus upsells.
Yeah, So we have.
I'm very pleased to share that we've actually doubled our sales velocity. After we had done the acquisition of three square market now we took a little bit of time to get the installation velocity also going and that has now started matching the sales velocity I would say just in the last couple of months till then it does.
Gently lagging behind.
And then in terms of a mix of new logos versus current logos.
I would say there's been a lot more <unk>.
New logos for that target.
But not necessarily new logos for us as a company. So we've done a lot of cross and upsell if that makes sense.
Yes. Thank.
Thank you that's all for me congrats on the quarter. Thank.
Thank you please.
Please standby for the next question.
Our next question comes from George Sutton with Craig Hallum. Your line is open.
Hey, Good afternoon, guys. This is Adam on for George Robyn You mentioned in your remarks that you are experiencing some good progress with equipment manufacturers I was wondering if you could talk more on that.
Yes, it's particularly in the international markets.
In Latin America and in Europe, we have found that when we work with equipment manufacturers and sort of embedded our solutions. There is a much faster and more efficient distribution model.
And we are finding more traction in.
In going to market that way in addition to kind of our traditional channels.
That's great and you did mentioned Latin America. There I know we had a few notable wins in Europe, but would be curious to know about.
The progress in Latam as well.
Egress in Latin America continues to be positive and we have gone through a few implementations that are competitive reasons, why we sometimes mentioned or don't mention that particular name.
Or not so.
The trajectory is actually very good but the nature of the implementation of this such that we are.
We're not sharing the names of specific customers yet for Latin America.
Understood. Thanks, guys.
Please standby for the next question.
The next question comes from Gary Presto piano with Barrington Research. Your line is open.
Scott do you have.
You gave the total transactions for this quarter, but do you have.
Absolute increase the percentage increase year over year on transactions handy.
Overall, the number of transactions at the dollar value of transactions.
Yes, Im just looking for the total number of transactions you had $283 million right. So were up 3% year over year were up 2% sequentially.
Okay.
And then.
In terms of what you did in the UK.
I would assume that I know you've already sold some product on the continent, but are there plans to do a age.
One of these showcases on continental Europe in the major countries like France, Germany. This year.
Not this year our next major event of a similar nature is in Latin America and that is on the fifth of December. So so we've got a.
Kind of a well sequenced game plan of these types of events and the next.
Focus is really on the Latin America event.
So.
Terms of.
Three-square markets was doing business in Europe, correct, and they had some seed software there.
They had they had their product there and youre going to try and cross sell seed software.
Is that correct.
That's correct and we actually have implemented seed software and cross sold already that happened a couple of quarters ago and it is in place.
Okay. Thank you.
Please standby for the next question.
As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.
Yeah.
Our next question comes from Marc Feldman with William Blair. Your line is open.
Mark if your phone is on mute can you on mute please.
Mark you may want to try to log out and log back in.
Please standby.
I am showing no further questions at this time.
I would now like to turn the call back to Ravi for closing remarks.
Well. Thank you all for joining this call.
To summarize we continue to be very excited about the trajectory. We're on in terms of expanding operating leverage and growing our earnings in an aggressive manner. We are also pleased with the traction on both growth drivers for the business international expansion as well as growing the micro market business.
Including adding newer products like smart coolers, and targeting newer sub verticals like gyms, and fitness centers et cetera. So.
A lot of positive momentum from the first quarter as we have kicked off the year and look forward to continuing to drive the business forward to the next few quarters and getting to our long term goals.
You.
Okay.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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