Q1 2025 Cantaloupe Inc Earnings Call
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Dara Dierks, Unknown Executive, Ravi Venkatesan
Speaker Change: Hello and thank you for standing by. Welcome to the Canterlope first quarter fiscal year 2025 earnings conference call.
At this time, all participants are in a listen-only mode.
Speaker Change: To withdraw your question, please press star 1, 1 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Meghna Mehra. You may begin.
Dara Dierks, Unknown Executive, Ravi Venkatesan
Meghna Mehra: Thank you. Good afternoon, everyone. Welcome to the Camp Loop First Quarter Earnings Conference Call. With me on the call today is Ravi Venkatesan, Chief Executive Officer and Scott Stewart, Chief Financial Officer.
Meghna Mehra: 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.
Meghna Mehra: 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.
Meghna Mehra: 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.
Meghna Mehra: 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.
Meghna Mehra: Kamploop undertakes no obligation to update any forward-looking statements, whether because of new information, future events, or otherwise.
Speaker Change: 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.
Speaker Change: These non-GAAP financial measures are supplemental to and not substitute for GAAP financial measures.
such as net income or loss.
Speaker Change: Details of these non-GAAP financial measures, a presentation of the most directly comparable GAAP financial measures.
Speaker Change: as well as the most comparable gap 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.camsloop.com. And with that, I would like to turn the call over to Ravi.
Ravi Venkatesan: Thank you. Good afternoon, everyone, and thank you for joining us today for our FY25 Q1 call.
Ravi Venkatesan: I'll first start with a high level of our Q1 performance, and then I'll talk about our fiscal year 25 strategic priorities before turning it over to Scott to dive deeper into the numbers and our outlook.
Q1 Financial Highlights
Ravi Venkatesan: During the first quarter, our total revenue increased 13% year-over-year to $70.8 million, driven by 18% year-over-year transaction revenue growth and 12% year-over-year subscription revenue growth.
Ravi Venkatesan: Total adjusted gross margin for the quarter was 40.7% compared to 38.8% in the same quarter last year.
Ravi Venkatesan: Adjusted EBITDA for Q1 was $9 million, a 14% increase compared to prior year.
Now on to our Q1 Business Highlights.
Ravi Venkatesan: Revenue growth was driven by a continued acceleration in growth in micro markets and more customers making the choice to go all in with cantaloupe.
Ravi Venkatesan: Pepe Foods expanded their footprint with us, replacing competitor kiosks with cantaloupe micromarkets. We also won new customers who are going all-in on seed services, including Unicorn Vending, part of our growing blind enterprise program operator community.
Ravi Venkatesan: In addition, attach rates for our analytics and remote price change add-ons are growing among customers that subscribe to the SEAD software platform.
Ravi Venkatesan: We successfully completed the integration of SP Software's Venn Manager with Cantaloupe's payment devices to realize our cross-sell strategy following the SP Software acquisition.
Ravi Venkatesan: New SP software wins include JW Vending, a catalog micromarket customer, and now all-in with our combined offerings, leveraging VendManager as their VMS solution.
Other wins include Vending Sense and J.J. Foxx Vending.
Ravi Venkatesan: We continue to grow in the UK EMEA region, adding multiple new customers for cashless payment and micro market services.
Ravi Venkatesan: In addition, a notable win in Q1 was carbon-neutral vending, replacing over 450 competitive devices with our cantaloupe card readers.
Ravi Venkatesan: In the LAC region, we are seeing continued momentum in both the enterprise and small business segments and are in the process of scaling our deployments across the region.
Ravi Venkatesan: Micromarkets and smart stores are becoming the go-to solution for residential complexes as they seek to bring convenience and differentiation to their resident offerings, including the Dorsey in Denver.
Speaker Change: Quote, adding a micro market to our property allows us to offer an amenity on site to our residents that bring convenience right at their doorstep.
Speaker Change: The nearest grocery store is an eight-minute walk from our property, so offering food and beverage as well as at-home products is essential for residents and has proven to be a great tool for us in our renewal strategy.
Speaker Change: In retaining residence with this amazing perk, unquote, said Rafael Ramirez, Lifestyle Director of the Dorsey.
Speaker Change: Moving on to our sports and entertainment vertical with Cantaloupe's Czech platform, two recent notable events include the Lacrosse Center in Wisconsin, a premier entertainment, concert, and events destination, and the Detroit Opera House in Michigan.
We continue to launch innovations across our product lines.
Speaker Change: In Q1, we launched SUITS, a premium suite management system designed to streamline and enhance the hospitality suite experience at stadiums and venues.
Speaker Change: In September, we announced a significant update to our industry-leading SEAD vending management software platform.
Speaker Change: According to James Brown, senior director with Canteen Technology, this new look and feel of SEED is fantastic.
Speaker Change: It is much easier to use on mobile devices, which translates to increased efficiency for our field teams. Kudos to Canalog for this upgrade.
Speaker Change: Lastly, one of our latest innovations to come to market and prove to be an early disruptor is Cantaloupe's smart stores.
Speaker Change: Expanding self-service commerce to completely new locations, we've seen early success with customers like Yakima Healthy Vending, who serves breakout rooms, schools, hospitals and gyms.
Speaker Change: With smart stores, theft is virtually non-existent. It's a game changer for the industry. The setup was incredibly straightforward and we were up and running faster than anticipated.
Speaker Change: Younger customers are drawn to the tech-savvy nature of our smart stores. It's not just about snacks, it's about the experience, said co-founder Stacey Darek.
Speaker Change: They are expanding their footprint and have already ordered additional smart stores.
Speaker Change: Now turning to our fiscal year 25 strategic priorities. As covered in our last call, in FY25 we are focused on scaling our international footprint and continued improvement in operational efficiencies across the organization.
Speaker Change: I'm pleased to start the fiscal year strong with this quarter, and I'm excited for the future of Cantaloupe as we execute on our vision to be the global technology leader that powers self-service commerce.
Speaker Change: I want to thank the entire Cantaloupe team for their continued focus on execution, which led to a solid quarter.
Speaker Change: With that, Scott will now review our Q1 results in more detail, as well as our outlook for FY25.
Scott Stewart: Thanks, Ravi. As Ravi mentioned, we had a strong start to the year.
Scott Stewart: Q1 revenue is up 13% to $70.8 million compared to Q1'24.
Scott Stewart: Our combined transaction subscription revenue grew 15.7% to $63.8 million during the quarter.
Scott Stewart: This includes $20.2 million of subscription revenue, a year-over-year increase of 12%,
Scott Stewart: and $43.6 million of transaction revenue, an increase of 18% compared to Q124.
Scott Stewart: The overall increase in transaction revenue was driven by growth in active devices and higher average ticket sizes.
Scott Stewart: Subscription revenue growth was largely driven by the increase in active devices and strength in our micro-markets.
Scott Stewart: As of September 30th, 2024, we had over 32,000 active customers and 1.23 million active devices, an increase of 9% and 3.2% respectively compared to the prior year.
Scott Stewart: As a reminder, this is defined as our total subscription and transaction fees for the trailing 12 months divided by the average total active devices for the same period.
Scott Stewart: Our equipment revenue was $7 million, a decrease of 6.7% compared to Q1 FY24.
Scott Stewart: Total adjusted gross margin for the quarter was 40.7% compared to 38.8% in the same quarter last year.
Scott Stewart: Subscription and transaction revenue adjusted gross margin was 44% compared to 42.5% in the prior year. This increase was driven by continued growth in the gross take rate for transaction processing and an increase in our average ticket size.
Scott Stewart: Adjusted gross margin on equipment revenue for Q1 FY25 declined slightly to 11.4% from 12.2% in the prior year.
Scott Stewart: Total operating expenses in Q1 FY25 increased to $24.7 million compared to $21.6 million in Q1 FY24.
Scott Stewart: Given by our continued expansion into international markets and non-recurring expenses related to our change in auditor and transaction costs for the SB software acquisition.
Scott Stewart: Net income applicable to common shares for the first quarter was $3.3 million, or $0.04 diluted earnings per share, compared to net income of $1.7 million, or $0.02 diluted earnings per share in the prior year period.
Scott Stewart: Adjusted EBITDA was $9 million for the first quarter compared to $7.8 million in the prior year period, an increase of 14%.
Scott Stewart: We ended the first quarter with cash-in-cash equivalents of $33 million, down from our ending FY24 balance of $59 million.
Scott Stewart: The decrease in cash is largely due to the cash paid for the FB Soft acquisition and cash used in operating activities.
Scott Stewart: The cash use in operating activities is largely driven by the timing of payments made to our customers for transaction processing.
Scott Stewart: Now turning to our Fiscal Year 2025 Guidance. Based on what we see today,
We are reiterating our guidance for the fiscal year.
Scott Stewart: Total revenue to be between $308 million and $322 million, representing growth of 15% to 20%.
Speaker Change: Yeah. Thanks for taking my question and good to see the company off to a strong start for the first quarter.
Speaker Change: Most margin profile for the subscription and transaction fee business came in better than what we had expected good to see the the higher take rates and the average ticket size going up I'm. Just curious going forward do you think that the level that you achieved in the first quarter is likely to sustain or increase a little bit of that.
Speaker Change: Thinking about the profile for the next three quarters.
Speaker Change: Hey, Josh Thanks for the question.
Speaker Change: Yes, we do anticipate that trend to continue we did do a great job in increasing our overall take rate.
Speaker Change: Seen that increase over the past four quarters.
Speaker Change: I do expect that to kind of tap out probably this quarter and maybe next quarter.
Speaker Change: But the overall margin.
Speaker Change: On the transaction processing, we feel will continue to improve throughout the year largely due to the fact of our average ticket size because a portion of the processing fees are fixed as that ticket size gets bigger it will help improve our margins. So we do see an increasing slightly as we go throughout the year.
Speaker Change: I appreciate the context there.
Speaker Change: Looking at the international markets I know you touched on that before in Latin America, you talked about you had secured.
Speaker Change: <unk> key tier one customer I am just curious if theres any updates on how deployment.
Speaker Change: In the early stages going with that customer and also you mentioned about potentially security. Some other large awards there or is that still the expectation.
Speaker Change: Yes, Josh Thanks for that question as well we continue to be.
Speaker Change: Bullish about both the Europe, and Latin America expansion initiatives and are continuing to work to scale. Those specifically in Latin America. You are correct, we have been deploying with large customer and we actually have taken a very cautious and thoughtful approach to measure results.
Speaker Change: And generate some metrics in terms of improved same store sales operational efficiencies et cetera from those deployments.
Speaker Change: Almost almost throttling it a little bit as we scale those deployments. So that we are building on rock and northern sand in those new markets.
Speaker Change: Thanks, and then last question for me.
Speaker Change: Looking at the guidance a relatively wide range for EBITDA and net income guidance I would assume that kind of narrows, a little bit as we move through the year, but if you could kind of just go over some of the puts and takes how youre thinking about what would get you to the low end versus the high end of that range and how things are looking as we stand today.
Speaker Change: Sure.
Speaker Change: So overall revenue growth is a big driver of that and the increased margins is also driving that as well when you're speaking specifically to net income.
Speaker Change: Tax expense is also going to be a portion of that as well so as we've improved our profitability over the past year or two.
Speaker Change: Now we have to start thinking about taxes and closing item with a forecast which is a good problem to have so talks will also be the other big component of it and then when you look at Opex.
Speaker Change: We will be holding that fairly steady, but since the first quarter, we expect that.
Speaker Change: Two slightly.
Speaker Change: <unk> study or even slightly decrease a little bit as we go through the next three quarters.
Speaker Change: So those will probably be the big drivers.
Speaker Change: I appreciate it thanks guys.
Speaker Change: Thank you.
Speaker Change: We will take our next question.
Speaker Change: Your next question comes from the line of Marc Feldman from William Blair.
Speaker Change: Please go ahead your line is open.
Speaker Change: Hey, guys. Thanks for taking the question and I appreciate the <unk> disclosures over the past few quarters, but wanted to see if you could provide any updated thoughts on where that could go back at your Investor day in 'twenty. Two you talked about a $337 opportunity with the <unk> and that could go over to 400, but you've added a lot of products.
Speaker Change: And so just updated thoughts around that.
Speaker Change: Sure Mark what we provided during our Investor day, two years ago was if everybody.
Speaker Change: Someone was seen by every service that we offered for one device what would that look like and that was at the $375. We've continued to add on new products.
Speaker Change: And so this quarter, we've seen a 12% growth in the RFP, we expect that to continue throughout that growth rate to continue throughout the rest of this year.
Speaker Change: Some of the drivers of that is the average ticket price getting higher that's also pushing up the overall ARPA and then as we start selling more of the <unk> analytics and as Ken look one becomes a larger portion of our revenue. That's also going to help drive that <unk>.
Speaker Change: Great.
Speaker Change: Very helpful. And then if I could just ask on the international.
Speaker Change: Part of the business here, so about a year ago. The target was to exit fiscal 'twenty four at 5%, 5% of revenues coming from international and obviously there has been some delays there and I know Rob you just talked about it a little bit about throttling.
Speaker Change: The Latin America region, but is there any updated.
Speaker Change: Sorts around where.
Speaker Change: International revenues could get for the year.
Yes, we're still tracking to the long term trajectory that we outlined.
Speaker Change: While as a.
Speaker Change: Throttling that I mentioned is more of a short term.
Kind of.
Speaker Change: Sort of the base on the scaling but in terms of long term contribution to revenue percentage of revenue et cetera.
Speaker Change: We are still on a fairly strong footing in fact, the first quarter was.
Speaker Change: Exciting in terms of new customer adds and new connection adds et cetera.
Speaker Change: Great. Thanks for taking the questions.
Speaker Change: Thank you.
Speaker Change: We'll take our next question. Your next question comes from the line of dairy crest Athena from Barrington. Please go ahead. Your line is open.
Speaker Change: Scott Ravi how are you.
Scott Ravi: Very good Gerry how are you.
Gerry: No just fine great earnings season.
Speaker Change: Just a couple of questions here.
Speaker Change: The smart store space.
Speaker Change: What what are the applications.
Speaker Change: That you are winning in that space in terms of I guess I'm just trying to have how are these.
<unk> products.
Speaker Change: Where would they be utilized I guess.
Speaker Change: I'm trying to get a handle on that.
Speaker Change: So I've got one word for you shrink.
Speaker Change: Its all true also known also known more in layman's terms as retail pest. So what's happened is because of rebuild tariff going out of control.
Speaker Change: <unk> seen a tremendous demand for solutions that can prevent tight while simultaneously taking friction out of the buying experience.
Speaker Change: We've seen these smart stores going to fitness centers going to corporate break rooms going to University is go into hospitals.
Speaker Change: A variety of locations where.
Speaker Change: No.
Speaker Change: Because of the nature of how it's locked by default there is no stealing possible and it actually requires the tap of a credit card before it unlocks.
Speaker Change: And then there is AI and smart technology that detects exactly what products are taken by our consumer and they are charged for it.
Speaker Change: We've deployed in multiple locations, where if they had.
Speaker Change: Our shrink rate or a test rate of gosh, sometimes even double digits and it goes down to almost nothing after it's deployed.
Speaker Change: That's the major use case right now.
Speaker Change: And you are producing that equipment as well as.
Speaker Change: Doing the connectivity and processing the transaction.
Speaker Change: Yes, it's an end to end solution that we sell now we obviously work with partners for different components and things like that like we do for the rest of fire.
Speaker Change: <unk>.
Speaker Change: Okay and then just at this point as you look across the company.
Speaker Change: You are driving trying to drive higher ticket prices and all that.
Speaker Change: If you take your number of transactions divided by your transaction volume it looks like it's like about $2 80.
Speaker Change: But as we go forward.
Speaker Change: Yeah.
Speaker Change: I guess the.
Speaker Change: A question that we get is right now the mix is still really skewed towards the lower dollar transactions.
Speaker Change: As you go forward.
Speaker Change: Where do you think that number goes as you start adding the micro markets and some of these smart applications.
Speaker Change: Yes, I think it's going to continue to grow up and go up into the right and there are a couple of reasons for it one if you take the food and beverage sector, which has been I would say a very large portion disproportionately large portion of our business. We are going from potato chips to Cobb salad.
Speaker Change: That's why our chairman like to phrase it and.
Speaker Change: Needless to say Cobb salad are more expensive and so whether it's micro markets are smart stores youre seeing youre seeing a trend towards healthier food and fresh food and more custom and more gourmet food that comes out of common cities instead of.
Speaker Change: A regular kind of manufacturing right. So that's one vector the other vectors, we're selling a lot of non food and beverage items.
Speaker Change: Gear like Warner waters, cosmetics Pharmaceuticals electronics, there's all kinds of things that are now being sold through our smart stores or even vending machines that are atypical.
Speaker Change: From a historical perspective, and all of those are more expensive items and they are driving kind of higher ticket.
Speaker Change: Ticket prices and then of course, just just micro markets by by nature of how they're deployed also drive higher ticket prices Scott anything I forgot there in terms of what's driving that.
Speaker Change: Robin I think you covered it overall, Gary when you look over the past year, you've seen that we've been growing that average ticket price of about 10%.
Speaker Change: Youre right here and we do expect that to continue through the rest of the year.
Can you maybe give us some idea like.
Speaker Change: Of the total number of transactions like just in this quarter.
Speaker Change: What percentage of them would be going to more of these higher ticket items. Just so we can get an idea of where the company is and then maybe make some assumptions of where it can go.
Speaker Change: That's not anything that disclose before.
Speaker Change: And.
Speaker Change: Yes, yes, I think look I think we'd like to give some thought to how to draw that line because.
Speaker Change: It's not just apples and oranges, it's apples oranges and bananas things now so we have to create a logical line between here is what used to be in here that are all the new things because.
Speaker Change: It's not a simple that are more than two categories. There so but I think it's good feedback loop do some thinking around it and come back with some data.
Speaker Change: Data points sure.
Speaker Change: I appreciate it because thats really another key thing here with driving the transactional revenue.
Speaker Change: As you know.
Speaker Change: Getting a higher ticket price item.
Speaker Change: B B.
Speaker Change: Across the enterprise right.
Speaker Change: For sure.
Speaker Change: Thank you.
Speaker Change: I think that's something that's going to be constantly change as we go.
Over the next two three even four years I think that product mixes continue shifting and hopefully continue with the higher priced items.
Speaker Change: Okay. Thanks, guys.
Speaker Change: Thank you.
Speaker Change: Again, if you wish to ask a question. Please press star one one on your telephone.
Speaker Change: We will take our next question.
Speaker Change: And the question comes from the line of Mike Latimore from.
Speaker Change: Northland Capital. Please go ahead your line is open.
Speaker Change: Hi, This is on behalf of Mike Latimore could you give some color on the new word because such as the residential apartments on what kind of bookings the percentage of bookings can we expect from new verticals.
Speaker Change: So I'll take a pass at it and then Scott maybe you can add some more color. It's it's very early to talk about percentages of revenue what I can tell you is that the residential.
Speaker Change: Segment, which was nonexistent a couple of years ago.
Scott: It has really started to become relevant so that we are seeing micro markets, especially and also smart stores get deployed in the lobby areas of high end residential complexes and that's that's a whole new vertical for US. We're also seeing them get deployed in a fit.
Scott: <unk> center than car dealerships, which are again newer vertical for micro markets and smart stores, So I would say.
Scott: Exciting green shoots, but not at a level, where we can start talking about how much they're contributing to revenue as a percentage et cetera. Scott go ahead and add any other color there.
Scott: No Rob Yeah, that's exactly right.
Speaker Change: The use case in the area for the smart stores I think is limitless.
Speaker Change: It's still very early stages of very new for us as well so.
Speaker Change: I think there'll be a little while before we can provide any metrics around that.
Speaker Change: Got it.
Speaker Change: Could you give some color on the growth that we can expect on the active day basis should we continue to expect low to mid single digit growth.
Speaker Change: Yes, that's right.
Speaker Change: Throughout the rest of this year, that's what we're anticipating in the <unk>.
Speaker Change: Single.
Speaker Change: Low to mid range single digits.
Speaker Change: And honestly.
Speaker Change: While while we've continued that metric I think we have.
Speaker Change: Advised.
Speaker Change: Investors to sort of not only as much emphasis on that metric as a one dimensional predictor of the growth of this business because remember it was just.
Speaker Change: <unk> our card readers on vending machines.
Very easy to measure everything based on connections now you know the micro market active device does 10 times the business of let's say of a more legacy use cases, and the smart stores or maybe.
Speaker Change: Even twice that so there are again, it's not homogenous in terms of how active devices are.
So while we continue to report it so that we can provide continuity we have been deemphasizing it internally as well as with investors and we will continue to loosen.
Speaker Change: Got it got it thank you.
Speaker Change: Thank you. This concludes the question and answer session.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
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