Q2 2024 Cantaloupe Inc Earnings Call

February 8, 2024

Okay.

Operator: Thank you for standing by, and welcome to Cantaloupe's second quarter fiscal year 2024 earnings conference call. At this time, all participants are in a listen only mode.

Thank you for standing by and welcome to Cantaloupes second quarter fiscal year 2024 earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. To remove yourself from the queue, you may press star 1 1 again.

To ask a question during the session you will need to press star one one on your telephone to remove yourself from the queue. You May Press Star one one again I would now like to hand, the call over to Dara Dirks Investor Relations. Please go ahead.

Dara Dirks: I would now like to hand the call over to Dara Dirks, Investor Relations. Please, go ahead. Thank you. Good afternoon, everyone, and welcome to the Cantaloupe Second Quarter Earnings Conference call. With me on the call today is Ravi Venkatesan, Chief Executive Officer, and Scott Stewart, 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 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 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 not to place undue reliance on any such forward-looking statements, which reflect management's views only as of the date they are made.

Thank you good afternoon, everyone and welcome to the cancel of second quarter earnings Conference call with me on the call. Today is Ravi. Thank you, Jason Chief Executive Officer, and Scott Stewart, 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.

Our 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 the actual results to differ materially from such forward looking statements isn't.

And 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 statements, whether because of new information future results or.

Ravi Venkatesan: Cantaloupe undertakes no obligation to update any forward-looking statements, whether because of new information, future results, 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's operating results. These non-GAAP financial measures are supplemental to and not substitutes for GAAP financial measures. 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 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.com. And with that, I would like to turn the call over to Ravi. Thanks, Dara. Good afternoon, everyone.

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.

Sales of these non-GAAP financial measures a presentation of the most directly comparable GAAP financial measures and the reconciliation between those non-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 dot com and with that I would like to turn the call over it.

Ravi.

Thanks, Dara good afternoon, everyone and thank you for joining us today for our second quarter of fiscal year 2024 call.

Ravi Venkatesan: And thank you for joining us today for our second quarter of Fiscal Year 2024 call. During the second quarter of fiscal year 24, our total revenue increased 7% year over year to $65.4 million, driven by 17% year-over-year transaction revenue growth and 10% year-over-year subscription revenue. We now expect subscription and transaction revenue to be at the lower end of the 17 to 21% range for the fiscal year due to a slower-than-anticipated ramp in international revenue and delayed activations domestically. We now expect subscription revenue to be in the 12 to 15% range for fiscal year 24. Our backlog of shift devices and micromarkets remains robust.

During the second quarter of fiscal year 'twenty four our total revenue increased 7% year over year to 65 4 million.

Driven by 17% year over year transaction revenue growth and 10% year over year subscription revenue growth.

We now expect subscription and transaction revenue to be at the lower end of the 17% to 20, 21% range for the fiscal year due to a slower than anticipated ramp in international revenue and delayed activations domestically.

We now expect subscription revenue to be in the 12%, 15% range for fiscal year 'twenty four.

Our backlog of ship devices and micro markets remains robust we anticipate growth in subscription revenue in the second half to increase as we work through this backlog and continue to invest in decreasing activation timelines.

Ravi Venkatesan: We anticipate growth in subscription revenue in the second half to increase as we work through this backlog and continue to invest in decreasing activation time. We've spoken before about our initiatives to drive subscription revenue growth, the key driver of continued expansion in operating leverage, and we continue to be laser focused on that.

We've spoken before about our initiatives to drive subscription revenue growth. The key driver of continued expansion in operating leverage and we continue to be laser focused on this.

Ravi Venkatesan: In addition to a robust backlog, our international pipeline continues to build, and we are as excited as ever about the successes we are having in Europe and Latin America. I want to highlight the progress we've made in recent quarters on another key driver of operating leverage, which is the expansion of our growth margin. Total growth margin for the quarter was 37.2%, compared to 30% in the same quarter last year.

In addition to our robust backlog our international pipeline continues to build and we are as excited as ever about the successes, we're having in Europe and Latin America.

I wanted to highlight the progress we've made in recent quarters.

Another key driver of operating leverage which is expansion of our gross margins.

Gross margin for the quarter was 37, 2% compared to 30% in the same quarter last year.

This increase in gross margin was driven by higher margins across all lines of revenue.

Transaction margin our transactions revenue the largest of our three revenue streams.

Ravi Venkatesan: This increase in growth margin was driven by higher margins across all lines of revenue. Transaction margin, or transaction revenue, the largest of our three revenue streams, realized growth margins of about 20% this quarter, up from the high single-digit percentages just a couple of years ago. Recall that we had previously outlined the plan to drive transaction margins to 20% plus by fiscal year 25. I'm delighted to report that we've reached that goal a year ahead of schedule. As there is no additional SG&A expense associated with the incremental dollars we receive through transaction processing revenue, this gross margin expansion has a positive impact on our EBITDA and free cash flow, helping drive profitability. We now expect to be at the high end of our adjusted EBITDA guidance for fiscal year 2020. All in, we are pleased with our performance for the first half of the year. In addition, we kicked off the second half of the year with some exciting news.

Realized gross margins about 20% this quarter up from the high single digit percentages, just a couple of years ago.

Recall that we had previously outlined the plan to drive transaction margins to 20% plus by fiscal year 'twenty five.

I am delighted to report that we've reached that goal a year ahead of schedule.

As there is no additional SG&A expense associated with the incremental dollars. We received through transaction processing revenue. This gross margin expansion has a positive impact to our EBITDA and free cash flow, helping drive profitability.

We now expect to be at the high end of our adjusted EBITDA guidance for fiscal year 'twenty four.

All in we are pleased with our performance for the first half of the year. In addition, we kicked off the second half of the year with some exciting news.

Last week, we announced the acquisition of check this strategic investment positions catalog for expansion into the large and rapidly growing sports entertainment and restaurant sectors with a comprehensive suite of self service solutions.

There is tremendous synergy between our combined product line, which will enable growth across our combined customer base.

Ravi Venkatesan: Last week, we announced the acquisition of CHECK. This strategic investment positions Cantaloupe for expansion into the large and rapidly growing sports, entertainment, and restaurant sectors with a comprehensive suite of self-service solutions. There is tremendous synergy between our combined product lines, which will enable growth across our combined customer base. The addition of CHECK will fit nicely into our long-term strategy and create a new growth vector for the business. We are excited to welcome the Czech team to the Cantaloupe family.

The addition of check will fit nicely into our long term strategy and create a new growth vector for the business. We are excited to welcome to check theme to the catalog family.

I now want to highlight select customer wins from this quarter.

There is a growing trend among customers.

<unk> all in one solution providers that can manage cashless payment vending management software and micro market solutions.

Campaign of Northern California, vending, operator, serving Sonoma, Napa and Madden color piece migrated from competitor kiosks to our platform and integrated seed software throughout their operations.

Paramount vending was another Great example of our competitive cross sell win in the micro market space.

Nick the Pascal of Paramount vending stated.

We had previously used three square market, but had a combination of other micro market kiosks.

Ravi Venkatesan: I now want to highlight select customer wins from this quarter. There is a growing trend among customers seeking all-in-one solution providers that can manage cashless payments, vending management software, and micro market solutions. Canteen of Northern California, a vending operator serving Sonoma, Napa, and Marin counties migrated from competitor kiosks to our platform and integrated seed software throughout their operations. Paramount Vending was another great example of a competitive cross-sell win in the micro market. Nick DePascale of Paramount Vending Stations.

And we had been seeking a more streamlined way to manage our entire business.

We were already all in on seed as our Vms and we're excited to take advantage of the trade up program to upgrade to cantaloupe goal moving our entire micro market business to catalog as we continue to grow.

Our sales team continues to grow penetration in the small business micro market space with several wins, including tech some vending mifid vending.

All deployed micro markets and cooler cafes.

We also continue to see increased penetration of seed we are seeing steady adoption of seed markets, which is becoming the industry standards are combining management of bending micro markets and office coffee businesses.

During the second quarter, we posted a number of competitive wins.

Ravi Venkatesan: We had previously used ThreeSquare Market but had a combination of other micromarket kiosks, and we had been seeking a more streamlined way to manage our entire business. We were already all in on seed as our VMS, and we're excited to take advantage of the trade-up program to upgrade to Cantaloupe Go, moving our entire micromarket business to Cantaloupe as we continue to grow. Our sales team continues to grow penetration in the small business micromarket space with several wins, including Texan Vending and MeFit Vending, who both deployed micromarkets and cooler casting. We also continue to see increased penetration of the seed.

Customers converting their operations to seed, including culinary venture spending a large vending operator in the Tri State area and went west services, and Coos Bay, Oregon, who completed a full conversion to seed and imports.

On the product side, we recently leased to new subscription products feed analytics and intelligence.

These tools are designed to transform the way vending operators leverage data for revenue growth, improving real time decision, making and enhancing productivity.

The pic easy or.

Warehouse picking solution is now fully integrated with the three square go kiosk opening up opportunities with micro market operators that need a nimble warehouse picking solution.

<unk> platform, including seed entrepreneur and seed enterprise is now available in Mexico with full Spanish language support.

Steve was showcased at our catalog live Mexico event held in December.

We hosted over 100 industry leaders there.

Prospects were able to hear strong endorsements from Riviera vending and feel good markets, who will describe the utilization of cantaloupes vending and micro market solutions. We also continued to see expansion into the mid market segment, a newer segment for us as well as with channel partners and in adjacent verticals.

For example, our partnership with Avs companies one of our Master resellers continues to build as they purchased additional devices in Q2 and also expanded into the micro market space by purchasing Cantaloupe go kiosks.

Growth in adjacent verticals was driven by an expansion into the amusement sector with Mendota Valley amusements supplier of music and gaming machines.

Ravi Venkatesan: These tools are designed to transform the way vending operators leverage data for revenue growth, improving real-time decision-making, and enhancing productivity. Our Warehouse Picking Solution is now fully integrated with a three-square go-kiosk, opening up opportunities with micromarket operators that need a nimble warehouse picking solution. The SEED platform, including SEED Entrepreneur and SEED Enterprise, is now available in Mexico with full Spanish language support. SEED was showcased at our Cantaloupe Live Mexico event held in December.

The United States.

Leather stated thanks to cantaloupe were seamlessly transitioning from zero to implementing hundreds of cash card readers with plans for further expansion.

This strategic move is projected to boost our revenues by at least 25%.

Using cantaloupe was a clear decision for us as their innovative solutions perfectly cater to business growth objectives across the gaming and restaurant spaces.

On the international front, our event in Mexico City in December was a success.

Ravi Venkatesan: We hosted over 100 industry leaders there. Prospects were able to hear strong endorsements from Riviera Vending and Fieldwood Markets, who described the utilization of Cantaloupe's vending and micro-market. We also continue to see expansion into the mid-market segment, a newer segment for us, as well as with channel partners and an adjacent vertical. For example, our partnership with ABS companies, one of our master resellers, continues to build as they purchased additional devices in Q2 and also expanded into the micromarket space by purchasing Cantaloupe Go kiosks. Growth in adjacent verticals was driven by an expansion into the amusement sector with Mendota Valley Amusement, a supplier of music and gaming machines throughout the United States.

Since that event, we started pilots with multiple customers in Latin America, which we expect to scale in Q3 and beyond.

In Europe, we secured a number of deals that telematics and cashless payment acceptance.

These deployments are going through the stages of pilots followed by larger scale deployments.

So continue to experience growth in our micro market solutions for the European market, bringing on new customers, such as candy local vending vending people and Rg's coffee.

So as you can see the shift we made to our go to market strategy over the last 12 months.

Showing results.

We also remain focused on the continued optimization of cost of goods stores.

As mentioned earlier, we made significant progress in expanding gross margins through the optimization of Cogs, especially in transaction processing.

Lastly, being disciplined on operational expenses is also a priority and we expect to finish the year with a decrease in opex as a percentage of revenue.

In Q2s, Opex increased slightly year over year, which was driven by our investments in international expansion and also the inclusion of three square market related expenses this quarter.

We remain excited about the long term opportunity for catalog driven by secular tailwind, including decreased use of cash <unk>.

Increased use of credit cards, and the increased use of cashless payment options, which continue to drive industry growth.

Ravi Venkatesan: Since that event, we've started pilots with multiple customers in Latin America, which we expect to scale in Q3 and beyond. In Europe, we've secured a number of deals with telemetry and cashless payment acceptance. These deployments are going through the stages of pilots followed by larger-scale deployments.

While we are excited about the growth prospects in adjacent verticals.

<unk> insight forecast that the number of connected vending machines worldwide.

Growth at a CAGR of 16, 4% to reach $12 3 million units by 2027.

Forecast that augurs, well for the growth of our core vending and micro market business.

Ravi Venkatesan: We also continue to experience growth in our micromarket solutions for the European market, bringing on new customers such as Canny Local Vending, The Vending People, and RG Coffee. So, as you can see, the shifts we made to our go-to-market strategy over the last 12 months are showing results. We also remain focused on the continued optimization of possible goods sold. As mentioned earlier, we've made significant progress in expanding gross margins through the optimization of COGS, especially in the transaction process. Lastly, being disciplined on operational expenses is also a priority, and we expect to finish the year with a decrease in OPEX as a percentage of revenue. In Q2, OPEX increased slightly year-over-year, which was driven by our investments in international expansion and also the inclusion of three-square market related expenses this quarter.

In addition, consumer research confirms increased willingness to buy more items and buy more expensive items from vending machine.

As for the operators labor shortages and a higher reliability derived from cloud processing continues to drive increased adoption of speed as an industry platform deep.

<unk> technology continues to be a proven solution to help customers drive revenue and deliver cost reductions.

In summary, I could not be more proud of our team's ability to execute on strategic priorities, especially the expansion of gross margins.

And disciplined with operational expenses that have led to strong growth in adjusted EBITDA. We are proud of our product innovation that enables our customers to increase revenue through new modes of payment. Additionally, consumer engagement features as well as new business tools for running a more efficient.

<unk>.

With that.

I will now review, our Q2 results in more detail as well as review our updated outlook for fiscal year 'twenty four.

Yes.

Thanks Ravi.

Already mentioned, we delivered another strong quarter at <unk> 24 revenue was $65 4 million.

Ravi Venkatesan: We remain excited about the long-term opportunity for Cantaloupe driven by secular tailwinds, including decreased use of cash, increased use of credit cards, and the increased use of touchless payment options, which continue to drive industry growth. Additionally, we are excited about the growth prospects in adjacent verticals. Berg Insight forecasts that the number of connected vending machines worldwide will grow at a CAGR of 16.4 percent to reach 12.3 million units by 2027, a forecast that augurs well for the growth of our core vending and micro market business. In addition, consumer research confirms an increased willingness to buy more items and buy more expensive items from vending machines.

Up 7% year over year, our combined transactions subscription revenue grew 15% to $56 million during the quarter.

This includes $18 $1 million of subscription revenue our year over year increase of 10%.

And $37 9 million of transaction revenue, an increase of 17% year over year.

The overall increase in revenue was again driven by increased processing volumes higher average transaction ticket sizes and subscription revenue growth for micro markets.

As you may have noticed in our earnings release, we are not providing a new operating metric average revenue per unit.

This is defined as our total subscription and transaction fees for the trailing 12 months divided by average total active devices for the same period.

Management uses this metric to measure the impact of new products and features as well as higher ticket items being sold through our points of sale.

Ravi Venkatesan: As for operators, labor shortages and higher reliability derived from cloud processing continue to drive increased reduction of speed as an industry block. The technology continues to be a proven solution to help customers drive revenue and deliver cost savings. In summary, I could not be more proud of our team's abilities to execute on strategic priorities, especially the expansion of gross margins and discipline with operational expenses that have led to strong growth in adjusted EBIT. We are proud of our product innovation that enables our customers to increase revenue through new modes of payment, additional consumer engagement features, as well as new business tools for running a more efficient operation. With that said, Scott will now review our Q2 results in more detail as well as review our updated outlook for fiscal year 24. Thanks, Robbie.

The <unk> for <unk> 24 was $182 up 14% from the prior year period.

Our equipment revenue was $9 3 million a decrease of 25% compared to Q2 FY2023.

This was primarily due to prior year benefiting from the <unk> upgrade cycle is now behind us.

But overall equipment revenue was down we did see an increase in active device growth of 7% year over year.

Total gross margin for the quarter was 37, 2% compared to 31% in the same quarter last year.

Driven by higher margins across all three revenue lines.

Scripture in transaction revenue margin was 43, 1% versus 38, 3% in prior year.

This increase was driven by improved processing type rate.

These processing costs and subscription revenue, representing a larger share of our overall revenue.

Equivalent revenue margin for Q2, FY 'twenty four improved to a positive one 8% from a negative two 3% in prior year.

Scott Stewart: As Robbie mentioned, we delivered another strong quarter. Our 2Q24 revenue was $65.4 million, up 7% year-over-year. Our combined transaction subscription revenue grew 15% to $56 million during the quarter. This included $18.1 million of subscription revenue, a year-over-year increase of 10%, and $37.9 million of transaction revenue, an increase of 17% year-over-year. The overall increase in revenue was again driven by increased processing volume.

This is down from the immediate prior quarter of 12%.

Sequential decrease was driven by several opportunistic deals we were able to replace competitor devices.

Total operating expenses for Q2, FY 'twenty four were $20 7 million compared to $19 4 million in Q2, FY2023.

Net income applicable to common shares for the second quarter was $3 1 million or <unk> <unk> per share compared to net loss of $6 million or <unk> per share in the prior period.

Adjusted EBITDA was $8 5 million in the second quarter compared to $3 9 million in the prior year period, an increase of 119%.

We ended the second quarter with cash and cash equivalents were $43 5 million or <unk>.

Capital allocation priorities continuing to target profitable growth and are specifically focused on driving operational improvements to control opex extend our micro market offerings and investing in our domestic and international go to market strategy and product development.

Scott Stewart: Higher Average Transaction Ticket Sizes and Subscription Revenue Growth for Micromarkets. As you may have noticed in our earnings release, we are now providing a new operating metric, Average Revenue Per Unit, or ARPU. This is defined as our total subscription and transaction fees for the trailing 12 months, divided by average total active devices for the same period. Management uses this metric to measure the impact of new products and features, as well as higher-ticket items being pulled through our points of sale. The RQ for 2Q24 was $182, up 14% from the prior year period. Our equipment revenue was $9.3 million, a decrease of 25% compared to Q2 FY23.

Now turning to our FY 'twenty for guidance, we continue to expect total revenue between $275 million and $285 million and continue to expect transactions subscription revenue to be between $234 million and $242 million.

As Ravi mentioned earlier, we anticipate being on the lower end of this range due to a slower than anticipated ramp in international revenue and delayed activations domestically.

In addition, we expect higher than anticipated equipment revenue in FY, 'twenty, four which will ramp throughout the second half of the year as our international presence ramps.

We continue to expect total U S. GAAP net income to be between $9 million $15 million.

We expect to be at the higher end of our previously provided adjusted EBITDA guidance of between $28 million at $34 million and total operating cash flow to be between $28 million and $38 million.

With that we'd now like to turn the call back over to the operator for the Q&A session operator.

As a reminder to ask a question you will need to press star one on your telephone again Thats star one to ask a question to remove yourself from the queue. You May Press Star one one again, please standby, while we compile the Q&A roster.

Scott Stewart: This was primarily due to the prior year benefiting from the 3G upgrade cycle that is now behind, but overall, equipment revenue was down. We did see an increase in active device growth of seven percent year over year. Total gross margin for the quarter was 37.2% compared to 30.1% in the same quarter last year, driven by higher margins across all three revenues. Subscription and transaction revenue margin was 43.1% versus 38.3% in prior years. This increase was driven by an improved processing take rate, reduced processing costs, and subscription revenue presenting a larger share of our overall revenue. Equipment revenue margin for Q2 FY24 improved to a positive 1.8% from a negative 2.3% in the prior year, although this is down from the immediate prior quarter of 12%.

Yes.

Okay.

Our first question.

Comes from the line of Chris Kennedy of William Blair. Your question. Please Chris.

Good afternoon. Thanks for taking the question. So it's been over a year since your Investor day and at that at Investor Day, you talked about 20% plus subscription growth for the business I think over the next three years can you just give your updated thoughts on achieving that goal.

Yes, Chris Thanks for asking the question we are on the right trajectory for the long term goals, we outlined the challenge that we faced and continue to face is delayed activation timelines. The good news is it's not a demand problem we have.

Significant backlog of sold and shipped devices in micro markets. The challenge is more of an installation and activation.

Scott Stewart: The sequential decrease was driven by several opportunistic deals. We were able to replace competitor devices. Total operating expenses for Q2 FY24 were $20.7 million compared to $19.4 million in Q2 FY23. Net income applicable to common shares for the second quarter was $3.1 million, or $0.04 per share, compared to a net loss of $0.6 million, or $0.01 per share, in the prior period.

Timeline issue and we are continuing to invest in various ways to tackle that challenge. So as that normalizes, we expect our subscription revenue growth to ramp and we still believe that a long term sustainable target growth rate for our subscription revenue is the 20%.

Acknowledging the fact that right now we are at a much lower number than that number.

Got it Okay, and then real quickly on international.

It's been a.

Our strategy for a long time and you guys seem very confident.

Moving the needle I think in the back half of this year, but it seems like it's taking a little bit longer than expected can you just talk about the puts and takes with the international business. Thank you.

Scott Stewart: Adjusted EBITDA was $8.5 million in the second quarter, compared to $3.9 million in the prior year period, an increase of 119%. We ended the second quarter with cast cast equivalents of 43.5. Our capital allocation priorities continue to target profitable growth and are specifically focused on driving operational improvements to control op-ex, expanding our micro market offerings, and investing in our domestic and international go-to market strategy and product development. Now, turning to our FY24 guide. We continue to expect total revenue between $275 million and $285 million and continue to expect transaction subscription revenue between $234 million and $242 million. As Robbie mentioned earlier, we anticipate being on the lower end of this range due to a slower-than-anticipated ramp in international revenue and delayed activations domestically. In addition, we expect higher-than-anticipated equipment revenue in FY24, which will ramp throughout the second half of the year as an international presence ramps up. We continue to expect total U.S. gap net income to be between $9 million and $15 million.

Thank you so on the international business as I mentioned, we've now gone through several stages.

Doing launch events doing pilots proving our various aspects of the solution, including cashless payment acceptance elementary feed software as well as the micro market kiosks and now we are starting to scale all those so.

While it's taken longer than perhaps I would've liked maybe.

Answering this question two years ago.

Right now we are.

Shipping from a position of strength and I'm seeing great reception to our products and solutions in both Europe and Latin America. So that's what gives us the confidence in the ramp in the back half of this fiscal year.

Great. Thanks for taking the question.

Thank you.

Our next question.

Comes from the line of.

George Sutton, sorry, George Sutton of Craig Hallum. Your question. Please George.

Thank you Ravi just to follow up on the European piece of that you mentioned you're in the pilot phase for many of these deals can you just walk through a timeframe that our pilot would typically take and then.

When would we start to see those deals rollout.

Yes. Thanks for the question George and typically these pilots run three to four months and majority of them were actually started at various points in the last quarter some of them even earlier than that.

We we always chose not to disclose too much information about all of the specific customers and all of the specific pilot for competitive reasons.

But it's.

It's a juicy ramp is the best way I can describe it and I am very excited about where we are.

Europe and Latin America.

Not sure how much you want to disclose when you talk specifically about trade up program.

Operator: We expect to be at the higher end of our previously provided Adjusted Equity Guidance of between $28 million and $34 million, and total operating cash flow to be between $28 million and $30 million. With that, we'd now like to turn the call back over to the operator for the Q and A session. Operator? As a reminder, to ask a question, you will need to press star 11 on your telephone. Again, that's star 11 to ask a question. To remove yourself from the queue, you may press star 11.

Just curious how that trade up program works.

Okay.

As it sounds it's an incentive for operators, who may be stuck with equipment and micro markets in particular that are older.

Like anything else, if you said something up four or five years ago. It starts looking dated.

From a consumer experience perspective, and our trade up program offers.

A customer an opportunity to kind of trade up to the latest and greatest with us and and we provide some incentives for that.

And just to add to that a little bit too. It also helps the customers that they wanted to be all in with <unk>.

<unk> been using seed markets and they have seed on their vending machines, but don't have three square market kiosks, it's a way for them to trade out.

Chris Kennedy: Please stand by while we compile the Q&A roster. Our first question comes from the line of Chris Kennedy of William Blair. Your question, please, Chris. Good afternoon.

Good day.

Square market kiosk.

Understand lastly.

Ravi you mentioned with Chet.

You see that as a new vector of growth can you just talk about how this works with the rest of your.

Ravi Venkatesan: Thanks for taking the question. So it's been over a year since your Investor Day. And at the end of Investor Day, you talked about 20% plus subscription growth for the business, I think over the next three years. Can you just give your updated thoughts on achieving that goal? Yeah, Chris, thanks for asking the question. We are on the right trajectory for the long-term goals we outlined. The challenge that we faced and continue to face is delayed activation timelines. The good news is it's not a demand problem. We have a significant backlog of sold and shipped devices and micro markets. The challenge is more of an installation and activation timeline issue.

Distribution capability.

Absolutely look our mission simply put is we want to move as much commerce, if that's possible to self service commerce, and we want to be the leading provider of technology that powers. The self service commerce, when we looked at check in the stadiums and live events space.

<unk> has built an incredible set of technology capabilities that allow consumers to order from a mobile app on their phone they have an app that's embedded into the various league apps and the various teams apps and it also works by scanning QR codes at various locations at a stadium that are.

Kiosk that are distributed at various locations handheld devices as well as even cashier assisted point of sale.

Solutions. So in other words, it's a pretty comprehensive suite of self service capabilities that cut out the long lines and some of the challenges that these live events phase and enable more frictionless commerce. So it fits very nicely.

Ravi Venkatesan: And we are continuing to invest in various ways to tackle that challenge. So as that normalizes, we expect the subscription revenue growth to ramp. And we still believe that a long-term sustainable target growth rate for our subscription revenue is 20%, acknowledging the fact that right now we are at a much lower number than that number.

The best part about the acquisition as we dug into it was.

The same companies that we serve in the vending and micro market space are the companies that provide convenience services to these librarians and stadium. However, they don't currently benefit from the value proposition that seeds seed is providing around optimizing their warehouse workflow optimizing and dynamically skill.

Ravi Venkatesan: Okay. And then real quickly on international. It's been a strategy for a long time, and you guys seem very confident about it moving the needle, I think, in the back half of this year, but it seems like it's taking a little bit longer than expected. Can you just talk about the puts and takes with the international business? Thank you. Thank you. So on the international business, as I mentioned, we've now gone through several stages of doing launch events, doing pilots, proving all the various aspects of the solution, including cashless payment acceptance, telemetry, feed software, as well as the micromarket kiosk. And now we are starting to scale all those.

Fueling field services to go out and deliver food products and beverage products as well as doing smart merchandising because they have now real time inventory data real time sales data et cetera, So with what check has in terms of tech capabilities and what <unk> brings to the table in terms of these things.

It's a very powerful solution and we can picture to the exact same companies that we've already been selling into and have large and deep relationships with.

Perfect. Thank you very much.

Thank you.

Our next question.

It comes from the line of Griffin boss of B Riley. Your line is open Griffin.

Hi, Thank you for taking my questions just wanted to jump back to check real quick while we're on that point is there any I mean, I know, it's a relatively nascent business.

Ravi Venkatesan: So while it's taken longer than perhaps I would have liked, maybe, you know, answering this question two years ago, right now, we are, you know, shooting from a position of strength, and I'm seeing great reception for our products and solutions in both Europe and Latin America. So that's what gives us confidence in the ramp up in the back half of this facility. Thanks for taking the time to answer the question. Thank you. Our next question comes from the line of George, I'm sorry, George Sutton of Craig Hollum.

<unk> found it a few years ago, but is there any more color you can give on.

The revenue profile of our margins might be considering.

Considering that the purchase price was relatively nominal.

Sure I'll, let Scott jump in that.

Margin profile and the break up of revenue.

Yes, sure. So overall relatively profile as theyre predominantly transaction revenue.

So 95% of the revenue is transaction based they do have some subscription revenue.

George Frederick Sutton: Your question, please. Thank you, Robbie. Just to follow up on the European piece that you mentioned, you're in the pilot phase for many of these deals. Can you just walk through a time frame that a pilot would typically take?

Overall the margin profile.

A little hard to say right now, but we do know that there's going to be lots of synergies that we're going to receive from bringing them into our transaction processing realm and be able to get the type of volume discounts that we get.

Ravi Venkatesan: And then when would we start to see those deals roll out? Yeah, thanks for the question, George. Typically, these pilots run three to four months, and the majority of them were actually started at various points in the last quarter, some of them even earlier than that.

Will help really improve their margin profile, but with them only being a business for two years, it's not really worth talking about I think the margin profile.

Sure Yeah, no fair enough. Thanks for that color I appreciate it and then.

Ravi Venkatesan: We almost chose not to disclose too much information about all the specific customers and all the specific pilots for competitive reasons, but it's a, it's a juicy ramp, is the best way I can describe it. And I'm very excited about where we are with Europe and Latin America. I'm not sure how much you want to disclose, but you talked specifically about a trade-up program, and I'm just curious how that trade-up program works.

Yes next for me just on the.

The cash flow operating cash flow guide I'm, just curious if you could give more color on the cadence in the back half of the year or is it are you sort of expecting to see something similar as you saw last year.

In terms of sort of front loaded in <unk> or is it going to be more evenly weighted this operating cash flow coming in in the back half.

Yes, it will be probably evenly weighted over the third quarter and fourth quarter, we had a decrease in our operating cash during the second quarter, but a lot of that was just the mechanics of our credit card processing.

Ravi Venkatesan: You know, it's, as it sounds, it's an incentive for operators who may be stuck with equipment and micro markets, in particular, that are older. Like anything else, if you set something up four or five years ago, it starts looking dated from a consumer experience perspective, and our trade-up program offers a customer an opportunity to kind of trade up to the latest and greatest with us, and we provide some incentives for that. And just to add to that a little bit too, it also helps the customers that they want to be all in with seed. So if they've been using seed markets, and they have seeds in their vending machines, but don't have three square market kiosks, it's a way for them to trade out and get a three square market kiosk, understand.

During the because of the holidays at the end of the year. There is always a little bit of a decrease in the volume and then this year also happened to end on a Sunday, we had three days of transaction processing revenue that increased our accounts receivable. They got paid out the first week in January so that decrease as very temporary and then youll start to see that cash operating cash.

Buildup in the third quarter.

Great perfect. Thanks for thanks for the color I appreciate you taking my questions.

Thank you.

Our next question.

Comes from the line of Michael Latimore of Northland Capital. Your question. Please Michael.

Hi, this is on behalf of Mike Latimore.

Could you give some color on the hardware revenue do you expect it to go higher sequentially for the rest of the year.

Yes, we do so we expect it to grow sequentially in the third quarter and be even more heavily weighted in the fourth quarter and a lot of that has to do with our international ramp.

Ravi Venkatesan: Lastly, Robbie, you mentioned checks. You see that as a new vector of growth. Can you just talk about how this works with the rest of your distribution capability? Absolutely.

Alright, and then in terms of the international pipeline do you think Europe is a bigger contributor audits of Latin America. It was a bigger contributor.

Ravi Venkatesan: Look, our mission, simply put, is we want to move as much commerce as possible to self-service commerce, and we want to be the leading provider of technology that powers that self-service commerce. When we looked at Czech, in the stadiums and live event space, CHECK has built an incredible set of technology capabilities that allow consumers to order from a mobile app on their phone. They have an app that's embedded into the various League apps and the various Teams apps, and it also works by scanning QR codes at various locations at a stadium.

Okay.

In the near term Europe will be the bigger contributor, but as I've mentioned in the past Latin America is an interesting market. It's a barbell a market where you've got many number of very small players and then a very small number of very large players so as we get.

Any one of those large players to come onboard and that is in progress.

It will move in a very lumpy manners.

Two large numbers of connected devices.

Near term Europe, as we will definitely be bigger I think medium term.

Ravi Venkatesan: There are kiosks that are distributed at various locations, handheld devices, as well as cashier-assisted point-of-sale solutions. So, in other words, it's a pretty comprehensive suite of self-service capabilities that cut out the long lines and, you know, some of the challenges that these live events face and enable more frictionless commerce. So, it fits very nicely.

Growth in both kind of evenly based.

Alright, alright, thank you.

Thank you.

I'd now like to turn the conference back to Ravi reputation for closing remarks, Sir.

Thank you operator again, thanks for joining us this afternoon.

In summary, I am very excited about.

Getting ahead of schedule and plan on our transaction revenue journey and.

Arriving upon margin profiles that we expected or anticipated to reach in fiscal year 'twenty five and.

Ravi Venkatesan: The best part about the acquisition, as we dug into it, was that the same companies that we serve in the vending and micro-market space are the companies that provide convenient services to these live events and stadiums. However, they don't currently benefit from the value proposition that Seed is providing around optimizing their warehouse workflow, optimizing and dynamically scheduling field services to go out and deliver food products and beverage products, as well as doing smart merchandising because they now have real-time inventory data, real-time sales data, etc. So, with what CHECK has in terms of technological capabilities and what Seed brings to the table in terms of these things, it's a very powerful solution. And we can pitch it to the exact same companies that we've already been selling into and have established large and deep relationships. Perfect. Thank you very much.

We are they are almost a year ahead of schedule and we will continue to consolidate and build on those strengths. We remain committed to delivering operating leverage expansion in this business and the goals that we outlined at our Investor Day in December 2022, and look forward to executing on that trajectory.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

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Ravi Venkatesan: Thank you. Our next question comes from the line of Griffin Boss of B. Reilly. Your line is open, Chris.

Yes.

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Yes.

Griffin Boss: Hi, thank you for taking my questions. Just want to jump back to check real quick while we're at that point. Is there, I mean, I know it's a relatively nascent business, um, only founded a few years ago, but is there any more color you can give on, um, the revenue profile or margins? Uh, considering, uh, that the, the, the purchase price was, was, you know, relatively nominal? Sure, I'll let Scott jump in with the margin profile and the breakup.

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Scott Stewart: Yeah, sure. So overall, the revenue profile is that they're predominantly transaction revenue. So 95% of the revenue is transaction-based; they do have some subscription revenue. Overall, the margin profile is a little hard to say right now, but we do know that there's going to be lots of synergies that we're going to receive from bringing them into our transaction processing realm and being able to get the type of volume discounts that we get, which will help really improve their margin profile. But with them only being in business for two years, it's not really worth talking about, I think, the margin profile. Sure, yeah, no, fair enough. But thanks for that color!

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Scott Stewart: Appreciate it. And then, yeah, next for me, just on the cash flow, operating cash flow guide, I'm just curious if you could give more color on the cadence in the back half of the year, is it, are you sort of expecting to see something similar as you saw last year, in terms of sort of front loaded in 3Q? Or is it going to be more, you know, evenly weighted this operating cash flow coming in the back? Yeah, it will probably be evenly weighted over the third quarter and fourth quarter. We had a decrease in our operating cash during the second quarter.

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Scott Stewart: But a lot of that was just the mechanics of our credit card processing; because of the holidays at the end of the year, there's always a little bit of a decrease in the volume. And then this year also happened to end on a Sunday, so we had three days of transaction processing revenue that increased our accounts receivable that got paid out the first week in January. So that decrease is very temporary.

[music].

Yes.

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Scott Stewart: And then you'll start to see that cash operating cash build up in the third quarter. Great. Perfect. Thanks for the color and appreciate you taking the time.

Okay.

Yes.

Griffin Boss: Thank you. All right, the next question comes from the line of Michael Latimore of Northland Capital. Your question, please, Mike.

Okay.

Thanks.

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Michael Latimore: Hi, this is Aditya on behalf of Mike Latimore. Could you give some color on the hardware revenue? Do you expect it to grow higher sequentially for the rest of the year? Yes, we do.

Yes.

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Okay.

Thanks.

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Scott Stewart: So we expect it to grow sequentially in the third quarter and be even more heavily weighted in the fourth quarter. And a lot of that has to do with our international rank. All right.

Yes.

Okay.

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Ravi Venkatesan: And in terms of the international pipeline, do you think Europe is a bigger contributor or is it Latin America who's a bigger contributor? In the near term, Europe will be the bigger contributor, but as I've mentioned in the past, Latin America is an interesting market. It's a barbell market, where you've got a lot of very small players and then a very small number of very large players.

Yes.

Okay.

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Sure.

Ravi Venkatesan: So as we get, you know, any one of those large players to come on board and, you know, that is in progress, then it'll move in a very lumpy manner to large numbers of connected devices. So, you know, near term, Europe will definitely be bigger. I think, in the medium term, we'll see growth in both kinds. All right, all right, fine, thank you.

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Ravi Venkatesan: Thank you. I would now like to turn the conference back to Ravi Venkatesan for his closing remarks, sir. Thank you, operator. Again, thanks for joining us this afternoon. You know, in summary, I'm very excited about getting ahead of schedule and plan on our transaction revenue journey and arriving at margin profiles that we expected or anticipated to reach in fiscal year 25. And, you know, we are there almost a year ahead of schedule and will continue to consolidate and build on those strengths. We remain committed to delivering operating leverage expansion in this business and the goals that we outlined at our investor day in December 2022. And I look forward to executing on that trajectory. Thank you.

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Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Sure.

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Operator: ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Thank you for watching. Thank you for watching. Thank you for watching. Thank you for standing by and welcome to Cantaloupe's second quarter fiscal year 2024 earnings conference call. Thank you for standing by and welcome to Cantaloupe's second quarter fiscal year 2024 earnings conference call. At this time, all participants are in a listen-only mode.

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Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. To remove yourself from the queue, you may press star one one again.

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Thank you for standing by and welcome to Cantaloupes second quarter fiscal year 2024 earnings Conference call. At this time, all participants are in a listen only mode.

After the speaker presentation, there will be a question and answer session.

To ask a question during the session you will need to press star one one on your telephone to remove yourself from the queue. You May Press Star one again I would now like to hand, the call over to Dara Dirks Investor Relations. Please go ahead.

Dara Dirks: Cantaloupe undertakes no obligation to update any forward-looking statements, whether because of new information, future results, 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's operating results. These non-GAAP financial measures are supplemental to and not substitutes for GAAP financial measures. 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 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.com. And with that, I would like to turn the call over to Ravi.

Thank you good afternoon, everyone and welcome to the cancel of second quarter earnings Conference call with me on the call. Today is Ravi. Thank you, Jason Chief Executive Officer, and Scott Stewart, 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.

Our 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 the 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 undertakes no obligation to update any forward looking statements, whether because of new information future results.

Ravi Venkatesan: Thanks, Dara. Good afternoon, everyone. And thank you for joining us today for our second quarter of Fiscal Year 2024 call. During the second quarter of fiscal year 24, our total revenue increased 7% year-over-year to $65.4 million, driven by 17% year-over-year transaction revenue growth and 10% year-over-year subscription revenue. We now expect subscription and transaction revenue to be at the lower end of the 17-21% range for the fiscal year due to a slower-than-anticipated ramp in international revenue and delayed activations domestically. We now expect subscription revenue to be in the 12 to 15% range for fiscal year 24.

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 details of these non-GAAP financial measures a presentation of the most directly comparable GAAP financial measures and the reconciliation between those non-GAAP financial measures can be found in our press release issued this afternoon.

Posted on the Investor Relations section of our website at Www dot cancel of dot com and with that I would like to turn the call over to Ravi.

Thanks, Dara good afternoon, everyone and thank you for joining us today for our second quarter of fiscal year 2024 call.

During the second quarter of fiscal year 'twenty four our total revenue increased 7% year over year to $65 4 million.

Ravi Venkatesan: Our backlog of shift devices and micromarkets remains robust. We anticipate growth in subscription revenue in the second half to increase as we work through this backlog and continue to invest in decreasing activation time. We've spoken before about our initiatives to drive subscription revenue growth, the key driver of continued expansion in operating leverage, and we continue to be laser focused on that. In addition to a robust backlog, our international pipeline continues to build, and we are as excited as ever about the successes we are having in Europe and Latin America. I want to highlight the progress we've made in recent quarters on another key driver of operating leverage, which is the expansion of our gross margin. Total gross margin for the quarter was 37.2%, compared to 30% in the same quarter last year.

Driven by 17% year over year transaction revenue growth and 10% year over year subscription revenue growth.

Now expect subscription and transaction revenue to be at the lower end of the 17% to 20, 21% range for the fiscal year due to a slower than anticipated ramp in international revenue and delayed activations domestically.

We now expect subscription revenue to be in the 12%, 15% range for fiscal year 'twenty four.

We've spoken before about our initiatives to drive subscription revenue growth. The key driver of continued expansion in operating leverage and we continue to be laser focused on this in addition to our robust backlog our international pipeline continues to build and we are as excited as ever about the successes, we're having in Europe.

And Latin America.

Ravi Venkatesan: This increase in gross margin was driven by higher margins across all lines of revenue. Transaction margin, or transaction revenue, the largest of our three revenue streams, realized growth margins of about 20% this quarter, up from the high single-digit percentages just a couple of years ago. Recall that we had previously outlined the plan to drive transaction margins to 20% plus by fiscal year 25. I'm delighted to report that we've reached that goal a year ahead of schedule. As there is no additional SG&A expense associated with the incremental dollars we receive through transaction processing revenue, this gross margin expansion has a positive impact on our EBITDA and free cash flow, helping drive profitability. We now expect to be at the high end of our adjusted EBITDA guidance for fiscal year 2020. All in all, we are pleased with our performance for the first half of the year. In addition, we kicked off the second half of the year with some exciting news.

I wanted to highlight the progress we've made in recent quarters.

Another key driver of operating leverage which is expansion of our gross margins.

Gross margin for the quarter was 37, 2% compared to 30% in the same quarter last year.

This increase in gross margin was driven by higher margins across all lines of revenue.

Transaction margin our transactions revenue the largest of our three revenue streams.

<unk> gross margins about 20% this quarter up from the high single digit percentages, just a couple of years ago.

Recall that we had previously outlined the plan to drive transaction margins to 20% plus by fiscal year 'twenty five.

I'm delighted to report that we've reached that goal a year ahead of schedule.

As there is no additional SG&A expense associated with the incremental dollars, we received through transaction processing revenue.

This gross margin expansion has a positive impact to our EBITDA and free cash flow, helping drive profitability.

We now expect to be at the high end of our adjusted EBITDA guidance for fiscal year 'twenty four.

All in we're pleased with our performance for the first half of the year. In addition, we kicked off the second half of the year with some exciting news.

Tremendous synergy between our combined product line, which will enable growth across our combined customer base. The addition of check.

Fit nicely into our long term strategy and created new growth vector for the business. We are excited to welcome to check theme to the catalog family.

I now want to highlight select customer wins from this quarter.

Ravi Venkatesan: There is a growing trend among customers seeking all-in-one solution providers that can manage cashless payments, vending management software, and micro market solutions. Canteen of Northern California, a vending operator serving Sonoma, Napa, and Marin counties, migrated from competitor kiosks to our platform and integrated seed software throughout their operations. Paramount Vending was another great example of a competitive cross-sell win in the micro market. Nick DePascale of Paramount Vending Status.

There is a growing trend among customers seeking all in one solution providers that can manage cashless payment vending management software and micro market solutions.

Canteen of Northern California, vending, operator, serving Sonoma, Napa and Madden color piece migrated from competitor kiosks to our platform.

And integrated seed software throughout their operations.

Paramount vending was another Great example of our competitive cross sell win in the micro market space.

The Pascal of Paramount vending stated we had previously used three square market, but had a combination of other micro market kiosks.

Ravi Venkatesan: We had previously used ThreeSquare Market but had a combination of other micromarket kiosks, and we have been seeking a more streamlined way to manage our entire business. We were already all in on Seed as our VMS and were excited to take advantage of the TradeUp program to upgrade to Cantaloupe Go, moving our entire micromarket business to Cantaloupe as we continue to grow. Our sales team continues to grow penetration in the small business micromarket space with several wins, including Texan Vending and MeFit Vending, who both deployed micromarkets and cooler casting. We also continue to see increased penetration of the seed.

And we had been seeking a more streamlined way to manage our entire business.

We were already all in on seed as our Vms and we're excited to take advantage of the trade up program to upgrade to catalog goals moving our entire micro market business to catalog as we continue to grow.

Our sales team continues to grow penetration in the small business micro market space with several wins, including tech some vending mifid vending, who all deployed micro markets and cooler cafes.

Ravi Venkatesan: We're seeing steady adoption of seed markets, which is becoming the industry standard for combining management of vending micro markets and office coffee business. During the second quarter, we posted a number of competitive wins with customers converting their operations to seed, including Culinary Ventures Vending, a large vending operator in the tri-state area, and VendVest Services in Coos Bay, Oregon, who completed a full conversion to seed and e On the product side, we recently released two new subscription products: SEAD Analytics and SEAD Intelligence. These tools are designed to transform the way vending operators leverage data for revenue growth, improve real-time decision-making, and enhance productivity. Steed PickEasy, our warehouse picking solution, is now fully integrated with a three-square go kiosk, opening up opportunities with micromarket operators that need a nimble warehouse picking solution.

During the second quarter, we posted a number of competitive wins with customers converting their operations to seed it.

Including culinary ventures bending.

Large vending operator in the Tri State area, and then diverse services and Coos Bay, Oregon will completed a full conversion to seed and imports.

On the product side, we recently leased to new subscription products.

Analytics and intelligence. These tools are designed to transform the way vending operators leverage data for revenue growth, improving real time decision, making and enhancing productivity.

The Pic easy our warehouse picking solution is now fully integrated with the three square go kiosk opening up opportunities with micro market operators that need a nimble warehouse picking solution.

Ravi Venkatesan: The SEED platform, including SEED Entrepreneur and SEED Enterprise, is now available in Mexico with full Spanish language support. It was showcased at our Cantaloupe Live Mexico event held in December. We hosted over 100 industry leaders there. Prospects were able to hear strong endorsements from Riviera Vending and Feelgood Markets, who described the utilization of Cantaloupe's vending and micro-market. We also continue to see expansion into the mid-market segment, a newer segment for us, as well as with channel partners and an adjacent vertical. For example, our partnership with AVS companies, one of our master resellers, continues to build as they purchased additional devices in Q2 and also expanded into the micromarket space by purchasing Cantaloupe Go kiosks. Growth in adjacent verticals was driven by an expansion into the amusement sector with Mendota Valley Amusement, a supplier of music and gaming machines throughout the United States.

The seeds platform, including seed entrepreneur and seed enterprise is now available in Mexico with full Spanish language support.

Steve was showcased at our catalog live Mexico event held in December.

We hosted over 100 industry leaders there.

Aspects were able to hear strong endorsements from Riviera vending and feel good markets, who will describe the utilization of cantaloupes vending and micro market solutions. We also continued to see expansion into the mid market segment, a newer segment for us.

As well as with channel partners and in adjacent verticals.

Both in adjacent verticals was driven by an expansion into the amusement sector with Mendota Valley amusements supplier of music and gaming machines throughout the United States steel.

Ravi Venkatesan: CEO Bill Leather stated, "Thanks to Cantaloupe, we are seamlessly transitioning from zero to implementing hundreds of cash card readers with plans for further expansion. This strategic move is projected to boost our revenues by at least 25%." Choosing Cantaloupe was a clear decision for us, as their innovative solutions perfectly cater to business growth objectives across the gaming and restaurant sectors. On the international front, our event in Mexico City in December was a success. Since that event, we've started pilots with multiple customers in Latin America, which we expect to scale in Q3 and beyond. In Europe, we've secured a number of deals with telemetry and cashless payment acceptance. These deployments are going through the stages of pilots followed by larger-scale deployments.

<unk> leather stated thanks to cantaloupe were seamlessly transitioning from zero to implementing hundreds of cash card readers with plans for further expansion.

This strategic move is projected to boost our revenues by at least 25% choosing cantaloupe was a clear decision for us as they are innovative solutions perfectly cater to business growth objectives across the gaming and restaurant spaces.

On the international front, our event in Mexico City in December with the success.

Since that event, we started pilots with multiple customers in Latin America, which we expect to scale in Q3 and beyond.

In Europe, we secured a number of deals that telematics and cashless payment acceptance.

These deployments are going through the stages of pilots followed by larger scale deployments. We also continue to experience growth in our micro market solutions for the European market.

Ravi Venkatesan: We also continue to experience growth in our micromarket solutions for the European market, bringing on new customers such as Canny Local Vending, the Vending People, and RG's Coffee. So, as you can see, the shifts we made to our go-to-market strategy over the last 12 months are showing results. We also remain focused on the continued optimization of possible goods sold. As mentioned earlier, we've made significant progress in expanding gross margins through the optimization of COGS, especially in the transaction process. Lastly, being disciplined on operational expenses is also a priority, and we expect to finish the year with a decrease in OPEX as a percentage of revenue. In Q2, OPEX increased slightly year over year, which was driven

Going on new customers, such as Kenny local vending vending people Nrg's coffee.

So as you can see the shift we made to our go to market strategy over the last 12 months.

Showing results.

We also remain focused on the continued optimization of cost of goods stores.

As mentioned earlier, we made significant progress in expanding gross margins through the optimization of Cogs, especially in transaction processing.

Lastly, being disciplined on operational expenses is also a priority and we expect to finish the year with a decrease in opex as a percentage of revenue.

In Q2s, Opex increased slightly year over year, which was driven.

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