Earnings Call: Q4 2021

Sep 2, 2021

Ladies and gentlemen, thank you for standing by, and welcome to the Cantaloupe, Inc. 4th Quarter and Fiscal Year 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. I would now like to hand the conference over to your first speaker today, Alicia Nieva Woodgate, Vice President of Corporate Communications and Investor Relations of Cantaloupe Inc. Please go ahead. Thank you, and good afternoon, everyone. Welcome to the Cantaloupe 4th Quarter and Fiscal Year 2021 Earnings Conference Call. With me on the call this afternoon are Sean Feeney, Chief Executive Officer Wayne Jackson, Chief Financial Officer Anand Agarwal, Chief Revenue Officer and Ravi Venkatesan, Chief Technology 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 fact are forward looking in nature. Actual results could differ materially from those contemplated by the forward looking statements as a result of certain factors, including, but not limited to, Business, Financial, Markets and Economic Conditions. A detailed discussion of the risks and uncertainties that could cause actual results and events to differ materially from such forward looking statements is included with 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 reflects management's view only as of the date they are made. Cantaloupe undertakes no obligation to update any forward looking statements whether as a result of new information, future events or otherwise. This call will also include a discussion of certain non GAAP financial measures that we believe are useful for, among other things, evaluating Cantaloupe's operating results. These non GAAP financial measures are supplemental to and not for GAAP financial measures such as net income or loss. Details of these non GAAP financial measures, a presentation of the most directly comparable GAAP financial measures And a reconciliation between these non GAAP financial measures as well as the most comparable GAAP financial measures can be found in our press release issued this afternoon, which has been posted on the Investor Relations section of our website at www.cantaloup.com. And with that, I would now like to turn the call over to our Chief Executive Officer, Sean Feeney. Sean? Sean? Yes. The call is yours. Thank you, Alicia, and thank you, everyone, for joining us on our Q4 call. We are pleased with the quarter's results, which capped off a transformational year for the company. During the quarter, we reported revenue of $49,000,000 which increased 14.6% sequentially and 50.2% over Q4 2020. Increased dollar volumes throughout the quarter and we exited the year above pre COVID transaction dollar volume highs. Strong Q4 equipment revenue growth driven by an acceleration of customers purchasing 4 gs devices as we get closer to the 3 gs sunset. In addition to cross selling products and upgrading devices due to the sunset, we signed 2 Enterprise customers to our Seed platform, Elite Refreshment Services and Ven Buffet Lufkin Coke and deployed our Seed Cashless Plus Software to many SMB customers during the quarter, including vEnders. We also made significant progress on costs, reducing our operating expenses by 29% during the quarter compared to Q4 2020. Our solid financial performance, in addition to the strong balance sheet, has empowered us to invest in our people, Our technology and support our customers as they work to meet changing consumer needs. During the quarter, We created a strategic partnership with Kasos Technologies to introduce our next generation interactive device, which will be key in delivering consumer engagement capabilities for our customers. We launched a partnership with Bakkt Holdings to accept cryptocurrency payments and developed a program where the consumer can earn loyalty points to use at our customer locations. We also announced the development of the ePort Engage platform's premium and next generation touchscreen devices. As we look ahead to the next fiscal year, we remain dedicated to our mission to help the world buy it and go. Our growth initiatives are focused on sales, service and technology. On the sales and customer service side, We are investing in growing our adjacent markets to further expand our large addressable market opportunity. I expect to gain more traction on this initiative during fiscal year 2022. We continue to invest in our sales and marketing team, further enabling us to sign new customers and increase customer engagement with cross sell opportunities. We are increasing the automation and self-service capabilities of our customer portal, which will improve customer service and provide for more operating leverage. Our recent acquisition of Yolked Payments, an award winning micro market payments company, in combination with our seed markets product, will position us to expand in this fast growing segment of the unattended retail industry. We also continue to make progress on business development and partnerships in our international expansion efforts. Regarding our tech initiatives for FY 2022, we are continuing to invest In class solutions and service to drive future growth and operating leverage. 1st, as I briefly touched on before, We announced the acquisition of Yolked Payments at NAMA 2 weeks ago. Having worked with Yolked for the last 4 years, this acquisition was a natural progression of our Chip, as the technology is best in class and already integrated with seed markets, our leading seed markets offering enables our customers to optimize their micro market business by integrating route scheduling, warehouse pre picking and reporting. Yolked's point of sale platform further extends our micro market offering to include self checkout, while seamlessly integrating with Cantaloupe's inventory management and payment processing platforms. We believe our combined micro market offering financially attractive for operators of any location and any size, and we will continue to invest in this segment. We also believe that Yelp will help us continue to grow our unattended solution outside of vending and micro markets. At NAMA, we held our 1st Cantaloupe Innovation Summit, where we unveiled certain new products in 2 strategic pillars: Engage your consumer and optimize your business, all focused on enabling our customers to increase revenue through new modes of payment and consumer engagement as well as new business tools to run an efficient operation. These new innovations include: a campus card solution, which will enable students to leverage their campus card via their mobile wallets to pay for goods and services directly at any ePort G10 reader. Cryptocurrency acceptance capabilities, powered by our partnership with Bakkt, consumers will be able to pay with cryptocurrency through our more mobile platform when paying at any e port device touchless vending to allow consumers to 1 or multiple items and pay all from their smartphone or via the machine's cantaloupe point of sale device. We also introduced our new Eport Engage series, which is our next gen Eport touchscreen device that accepts EMV chip and most other payment types. It offers a full edge to edge color touchscreen to drive consumer engagement and is a platform for future innovation. These devices will start shipping this month. Our more mobile engagement platform is getting a full refresh. This will enable multiple functionalities we have market tested, including loyalty, rewards, touchless vending and new payment methods like crypto. The MORE platform is an app less experience, eliminating the friction of consumer enrollment or app download requirements and ultimately increasing consumer engagement and same store sales for our customers. Over the last few months, we have beta tested numerous new business tools and optimization features with select customers, all of which will drive greater efficiencies in their day to day operations. These include focusing on increasing the number of machines compatible with our remote price change capability. By the end of calendar year 2021, We will roll out new versions of our seed warehouse app, a mobile based application that enables greater ease and control over warehouse, Inventory and transfer processes. Finally, C Mobile will be upgraded with a modernized looking user interface with new Android and Apple friendly versions coming in the spring of 2022. All of these efforts in sales, customer service and technology are aided by the industry tailwinds of digital payments and touchless technology. In a study conducted in partnership with Site Research, we found that 90% of people surveyed stated that they shopped at unattended retail as much or more during the pandemic. The study also found that younger consumers were the most likely to increase usage of unattended retail during that period, but we saw an increased usage in all age demographics. The tight labor market seen in many U. S. Industries should continue to drive merchants to look for alternative solutions to keep their businesses open and growing. We view micro markets as a beneficiary of this dynamic as businesses adapt to this challenge. As we look ahead, it's clear that consumers find value in unattended retail and its growing acceptance, combined with our software and payments platform, opens the door to better customer engagement and increased revenue opportunities for our operators. Before turning it over to Wayne to go through our financials, I would like to thank our team for a great year and all of their hard work. Our customers are very supportive of the changes we are making and excited by the innovation they are seeing from Cantaloupe. I look forward to leading this growing company and fiscal year 2022 and beyond. Wayne, I'll turn it over to you to go over the financials in greater detail. Thanks, John. Good afternoon, everyone. From a financial perspective, we had a very good quarter. We reported record revenues for the Q4 of FY20 of $49,000,000 a 50.2% increase year over year and a 14.6% increase sequentially. License and transaction revenue totaled $38,200,000 for the 4th quarter, a 37.3% increase year over year and a sequential increase of 10.2%. Equipment sales for the Q4 were $10,800,000 124.5 percent year over year increase and a 33.6% increase sequentially as we gain momentum on converting our customers to 4 gs as well as continued growth of our customer current customer count. Active devices, defined as devices that have communicated or transacted with the company in the last 12 months, totaled $1,100,000 as of June 30, 2021, an increase of 1.4% year over year. Active customers, defined as customers that have at least one active device, totaled 19,800 as of June 30, 2021, compared to $17,200 as of June 30, 2020, an increase of 15% year over year and 6% over the Q3 of FY 2021. As we exited FY 2021, processing dollar volumes were above pre pandemic levels as businesses, schools and other organizations across the country continue to open. While the number of transactions did not exceed Pre COVID levels before year end, we are currently seeing the number of transactions above pre COVID levels. Total gross margin for the quarter was 30.2% compared with total margin of 34% for the prior year 4th quarter and 29.7 percent in the Q3 of FY 2021. Transaction revenues were significantly higher in the current quarter than prior year, resulting in L and T margins of 39.3 percent in the Q4 of this year compared to 42.3% in Q4 of last year. While gross margin was down for the quarter, L and T gross profit increased 27.7% in the current quarter over the prior year. Equipment margin for Q4 FY 2021 improved by 11.8 points to negative 2.3 from negative 14.1 percent in the prior year. Operating expenses in the 4th Quarter totaled $15,200,000 compared to $21,500,000 in Q4 FY 2020, A 29% decrease over the prior year, driven by lower SG and A expenses during the current quarter as well as no charges in the current quarter related to investigations, proxy solicitations and restatement expenses, which totaled $5,900,000 in Q4 of last year. SG and A expenses for the quarter totaled $14,300,000 compared to $13,700,000 for Q3 and $14,500,000 for the prior year quarter. Operating loss in the quarter was $467,000 compared to a loss of $10,400,000 in the Q4 of the prior year. Net income applicable to common shareholders for the Q4 was $2,700,000 or $0.04 per share compared to a loss of $11,400,000 or $0.18 per share in the prior year period. Adjusted EBITDA was $5,000,000 in the 4th quarter compared to $2,200,000 in the 3rd quarter and a negative $2,100,000 in the prior year period. This year over year increase was driven by favorable operating performance for the quarter as well as a one time benefit of $2,900,000 resulting from a reduction in accrued sales tax due to a state tax law change in the 4th quarter. Relating to our balance sheet and liquidity, we ended fiscal year 2020 with cash and cash equivalents of $88,000,000 Turning to FY 2022, we are introducing our guidance for the year. As mentioned previously, we exited FY 2021 with positive momentum in our core business and we'll introduce new products and solutions that will help drive growth in FY 2022 and beyond. Therefore, for FY 'twenty two, we expect revenue to be between $200,000,000 $210,000,000 Net loss applicable to common shares is expected to be between $7,000,000 $5,000,000 Adjusted EBITDA to range between 8,500,000 and $10,500,000 We expect to generate $8,000,000 to $10,000,000 in cash flow from operations. And lastly, capital expenditures will range from $12,000,000 to $14,000,000 I will now turn the call over to Sean for closing remarks. Thanks, Wayne. To wrap up, we are very pleased with our strong Q4 results And I'm incredibly excited about the future of Catalytical, including the momentum going into FY 2022, where we are expecting Top line revenue growth of between 20% 26%. We are firmly on a path to growth and continued industry leadership, defining how retailers can leverage technology to modernize and scale their business. With that, I'd like to turn it over to the operator for questions. Thank you. Our first question comes from Mike Latimore of Northland Capital. Your line is open. Yes. Awesome quarter outlook there. So volume is clearly picking back up, but I guess are there any verticals or regions where They're really not back to normally yet and you could still see some improvement in certain categories and then maybe what percent of revenue would those be? Yes, Mike, thanks for the question. We saw each other at NAMA and you got to talk to a lot of operators and I've been on the road Kind of every week and operators are very optimistic of what they're seeing and coming back. The Delta variant is having an impact though as people are delayed getting Back into the offices and that's kind of the one area. We've seen children pretty much back in school, college is back in session, But offices where we thought they'd probably be coming back in September seem to be pushing back and that's the one area that is Kind of dragging into recovery, but I would say our operators are optimistic and we are that, that will happen in this fiscal year. And that's something we're hoping for sooner rather than later. Yes. Okay. Great. And then I believe during kind of the parts of calendar 2020, a lot of your customers sort of Deactivated machines, I guess, are you seeing more of them kind of relight machines now? And I don't know, what percent of the base Could be relit, let's say. Mike, what I would say is we are seeing people kind of Relighting, the ones that aren't coming back yet are the ones in offices. And the other interesting phenomenon is We're beginning to see M and A activity pick up in the segment and that should be Good for us as a number of the larger operators are our customers and we'll convert people over to seed, we believe, as they Move forward. Got it. And then just last on transaction volumes. Did you have a number for that for the quarter? Wayne? I do. Transaction volumes and you'll see the full year in the K that we're going to file tomorrow. So transaction the number of transactions for the quarter It was $242,000,000 The dollar volume for the quarter was 515,000,000 Wow! That is strong. Okay. Very good. Great. Thanks a lot. Thanks, Mike. And we do ask that you limit yourself to 2 questions and then place yourself back in the queue for any follow-up. Our next question comes from George Sutton of Craig Hallum. Your line is open. Thank you. First question at your Innovation Summit, you kind of focused on 3 new areas of opportunity, campus card, crypto and Mobile engagement platform. I wondered if you could just give us a real quick summary of timing of expected impact and Also potential impact from each of those opportunities in your view? Yes. George, I'll ask Ravi to Kind of give you an idea of when we'll see those and what to answer your question. Yes, George. So this is Ravi Mehtaesen. The Campus Card launch is this fall and we should see impacts from that In our Q3 fiscal and on the crypto and the other loyalty and engagement features, They're also launching this fall and winter and those would have a longer tail of when we start seeing impacts towards the 3rd Q4 of our fiscal year. And George, we've built kind of when we think those will come on in the guidance that we've given you. Got you. And just one other bigger picture question as we think through the ROI that you're Offering to potential customers, as I think through some of the dynamics, you're offering them labor savings, you're offering them better Revenues via better merchandising and price flexibility and then also lower support costs. Can you walk through what's really Winning the day right now from your perspective in terms of deal opportunities? Yes. I think when you look at new opportunities, George, what you're seeing Is operators telling us and our reference customers telling prospects that they couldn't have navigated COVID without Our seed platform. And as labor continues to be incredibly tight to the level that there are actually CEO And presidents of operators driving routes because of the two impacts, 1 very tight labor, 2 COVID. And what they're telling us is the ability to adjust routes up and down in inventory levels and the right scheduling of routes, Seed is ultimately critical. So I would say the reason that you'll see us winning is, 1, it's a proven technology that works In any number of operators, we've got a large number of reference customers. We've got very clear ROI on reducing costs using the C platform And some of the customer engagement things that we're bringing, raising revenue on the point of sale device, and that's why we win. We address both ends, cost, efficiency, savings and increased revenue on the point of sale device. Great. Thanks, guys. Nice job. Thank you. Our next question comes from Chris Kennedy of William Blair. Your line is open. Can you give any more financial details, whether it be the purchase price, annual revenue or margin profile of Yolked? Chris, thanks. We're very excited about the acquisition of Yolked. It's a proven solution and that we've been partnering with them. We're excited about getting the expertise. It's a very, very small company. We paid a small cash amount upfront that you'll see in the K tomorrow of $3,000,000 And there's a $1,000,000 payment at the 1 year anniversary point as a retention tool. And then they have the ability to earn additional if they hit some aggressive sales targets In the next 3 years. Okay. Thank you. I'm sorry, I didn't answer the second part of your question. It's a pretty small company. They have between 3 5,004 100 installs. They'll contribute some, but it's an area that we're going to invest quite a bit In this fast growing segment. So we're investing, not generating what I would call a lot of operating leverage with them. Okay, great. Thank you. And then Sean, in the in your opening remarks, you did talk about the international Strategy, can you give an update more details on that? Yes, Chris. I wish I had some more definitive Thanks. But we are making good progress, especially in Latin America with some partnerships, and we've made good progress in Japan as we've talked about. It's just Both of those are a little bit slower going than I thought. And part of it is the pandemic, especially with Asia being able to get there and get face to face. But If you've done business in Japan, it is a slow moving type of thing, but we are making progress. And I hope here in the first half of This fiscal year to be able to give you some specifics around that. So I'm happy with the progress. I wish we were further along, but we are doing well there. Okay. Thank you. Thank you. Our next question comes from Gary Prestopino of Barrington Research. Your line is open. Hey, I know you can't talk about Yolked too much, but could you give us some idea of how big this Point of sale market is on the micro markets nationwide? Gary, if you look at it, coming from NAMA, it is a fast growing segment. But if you look at it, NAMA Today says there's 3,100,000 vending machines out there, they believe, and the numbers vary from 2.5 up as high as 4. There's only 43,000, 44,000 micro markets out there. So Every operator I talk to is looking at putting micro markets in their operation somewhere. And as we've talked before, Many of them when they put those in place, they redeploy the vending machines elsewhere. But I think most of the growth things that I've seen is they expect micro markets and the number of those to grow somewhere between 15% 30% over the next year and really accelerate in calendar 2022 when most operators feel that they'll be Pretty far out of COVID. So should be very good growth in this segment, And we're excited about having a full solution there with our very successful seed markets product now with the guys from Yolked. Does is it a crowded field in terms of product offerings on the point of sale or and then you get a competitive advantage by having Full integrated product? So there are some pretty large players, 365 Markets and Avanti. And there are a number of other kind of, as you would expect, with a high growth area, people coming along. We think The position that we have with operators already, the seed markets integration puts us in a very good spot to get some pretty good growth here in that segment. Okay. Thank you. Thank you. I'm showing no further questions at this time. Like to turn the call back over to Sean Feeney for any closing remarks. Great. Thanks, operator, and thanks all of you for your interest in listening to the call and your As I said, we had a great quarter and we are positioned for a great fiscal year 2022 with good top line growth and Increased adjusted EBITDA. So we look forward to talking to many of you over the next couple of weeks and answering your questions in greater detail. Thank you, operator. That will end the call. Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. Have a great day. You may all disconnect.