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And Hello. Thank you for standing by. Welcome to the Cantaloupe Second Quarter fiscal year 2025 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. To ask a question, you will need to press star one one on your telephone. To remove yourself from the queue, press star one one again. Also, please be reminded that this call is being recorded. I would now like to turn the conference over to your speaker for today, Magnamara. You may now begin.

Thank you. Good afternoon, everyone. 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 fact are forward-looking in nature. Actual results could differ materially from those contemplated by the forward-looking statements because of certain factors including but not limited to business, financial 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 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 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 a substitute 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 those non-GAAP financial measures as well as the most comparable GAAP financial measures can be found in our press release issued this afternoon at www.cantaloupe.com. And with that, I would like to turn the call over to Ravi. Thank you, Magna.

Good afternoon, everyone, and thank you for joining us today for our second quarter fiscal year 2025 call. I'll first start with a high-level view of our Q2 performance. I'll then talk about our fiscal year 2025 second-half priorities before turning it over to Scott to dive deeper into the numbers and our outlook. Q2 financial highlights. During the second quarter, our total revenue increased 13% year over year to $73.7 million driven by 17% year-over-year transaction revenue growth and 14% year-over-year subscription revenue growth. Total adjusted gross margin for the quarter was 41.7%, compared to 37.2% in the same quarter last year. Adjusted EBITDA for Q2 was $10.7 million, a 26% increase compared to the prior year reflecting continued success with our strategy of expanding operating leverage. Now on to our Q2 operating highlights. We continue to see strong growth in micro markets and penetration of seed software with existing as well as new customers. We gain momentum with customers going all in with us. An example is Premier Foodservice, who signed an agreement to replace all competitive micro markets with Cantaloupe solutions and then parallel signed up to go all in with seed software. New customer wins include EBS for vending who placed an order for several micro markets, including, interestingly, some kiosks to replace a full-service restaurant at a furniture store located in the southwest region. This supports our hypothesis that kiosk-based markets and our newest innovations like smart stores continue to provide more modern self-service solutions to an ever-expanding set of location types. Our premier and self-service payment acceptance and telematics devices continue to lead the market in North America. For example, Berkshire Foods recently replaced many competitive devices with our engaged and engaged combo units. Berkshire Foods continues to grow with our solutions, evidencing that one reliable trusted partner is key for a growing business to drive greater efficiencies. We're also seeing other verticals see cashless payment solutions such as automated retail and amusement. For example, Entertainment Solutions Group secured a large number of pulse devices for their amusement machines. Another example is Outdoor Vending Solutions, who acquired a significant number of our G11 serial devices to be placed at Lowe's distribution centers on Big Rhino propane self-service machines. On the indirect channel side, we worked with AVS to secure a large win in Q2 for our latest engaged pulse units, which will be a game changer for the amusement sector allowing customers to purchase multiple play credits in a single transaction through an interactive app that runs on the engage device. To highlight some wins in sports and entertainment, in the enterprise space, we added the San Jose Earthquakes at PayPal Park, to be the point of sale provider for all games and events at the stadium. This implementation not only includes our point of sale solutions, but also our newest suite management platform for their guest experience across the entire stadium. The implementation is already in progress, and we will launch in the upcoming 2025 season. Our integration of SP software and cross-sell wins are performing in line with expectations. For example, we debuted at the Vendex North event in November, our integrated solution for customers and showcased for the first time smart stores along with unveiling of the next generation of Venn Manager, a premier enterprise software solution that serves the UK and Ireland market. We secured Refresh Collective as a new Venn Manager customer and successfully implemented them onto that platform. In addition, we secured multiple smart store and cashless devices across a variety of UK locations. In Mexico, we secured a win with one of our large vending customers deploying micro markets for them. Our focus in Q2 was to deploy and maximize transactions from connections sold previously and we've executed very well on this objective, growing the transaction volumes across our cashless deployments in that region. Moving on to the product side, we launched and deployed new models for our innovative smart store series. The Cantaloupe Smart Store 600 and 700. These advanced self-service retail solutions are designed to revolutionize the way food and beverage vendors as well as broader retailers address key challenges, including labor shortages, theft, and shrinkage, while maintaining a seamless and inclusive consumer experience. This solution takes us into self-service commerce opportunities well beyond our traditional market niche. A perfect example of how we are leveraging this solution to extend into retailers is with our partners at GOLs. Josh Sandoz, Vice President of Military Operations at GOL, stated, the Smart Store 700 Duo has been a game changer for us exceeding all expectations. We can stock a diverse range of retail products and reduce our labor costs while maintaining a high standard of security. We're also able to create additional brand awareness with customized marketing wraps on each smart store. We've seen an incredibly positive response from our customers who appreciate the on-demand access to products like caps, tapes, headlamps, batteries, flashlights, notepads, socks, and more. Because of its success, we plan to expand smart stores across all our US Patriot locations. Within the first few months of launching this product, we sold several hundred smart stores with additional expanded store configurations where clients placed our trial or quad solutions in more public environments such as auto dealerships, colleges, and universities, senior living facilities, residential complexes, and more. As part of our strategy to develop and launch more add-on products, that serve in particular our SMB customers, we launched our micro-lending services under the brand of Cantaloupe Capital, in partnership with SunBox. We're enabling customers to go through a quick online approval process to get access to funds that help them more easily expand their business and secure the devices and micro markets they need to deploy their next location at all competitive rates. We launched our Cantaloupe Advantage program which allows brands to engage with consumers through digital advertising at point of sale touchscreen devices. The program's first collaboration was in partnership with Mastercard, aimed at supporting the Priceless Planet Coalition and its objective to plant 100 million trees around the world. The campaign ran across a variety of Cantaloupe card readers and micro market kiosks delivering over a million impressions within the first ten weeks. Our fiscal year 2025 second-half priorities will be to continue expanding operation support internationally, specifically in Europe and Latin America to allow more rapid scaling. We'll also continue to refine our go-to-market strategy across both direct and indirect channels to expand our customer base organically and through strategic acquisitions. I'm pleased with our second quarter fiscal year results and remain excited about the future of Cantaloupe as we execute on our vision to be the global leader that powers self-service commerce. I want to thank the entire Cantaloupe team for their continued focus on execution which led to a solid quarter. With that, Scott will now review our Q2 results in more detail, as well as our outlook for fiscal year 2025. Scott.

Thanks, Ravi. As Ravi mentioned, we delivered another strong quarter. Our Q2 2025 revenue was $73.7 million, up 13% compared to Q2 2024. Our combined transaction and subscription revenue grew 16% to $65.4 million during the quarter. This includes $20.7 million of subscription revenue, a year-over-year increase of 14%, and $44.4 million of transaction revenue, an increase of 17% compared to Q2 2024. The overall increase in transaction revenue was driven by the continued move from cash to cashless payments and the trend of higher average ticket sizes due to product mix shift. Subscription revenue growth was largely driven by our strength in micro markets, which continues to be our fastest-growing segment. As of December 31, 2024, we had over 32,000 active customers, and 1.3 million active devices, an increase of 10% and 4% respectively compared to the prior year. The average revenue per unit (ARPU) for Q2 2025 was $202, up 12% from the prior year period. As a reminder, this is defined as our total subscription and transaction fees for the trailing twelve months divided by the average total active devices for the same period. Our equipment revenue was $8.6 million, a decrease of 7% compared to Q2 FY2024. Total gross margin for the quarter was 41.7% compared to 37.2% in the same quarter last year, driven by continued expansion of our transaction margin. Subscription adjusted gross margin was 89.7% versus 89% in the prior year. And transaction gross margin was 25.6% versus 21.1% in the prior year. This increase was driven by better cost management and improved transaction gross margin on equipment revenues for Q2 FY2025 increased to 9.1% from 1.8% in the prior year. Total operating expenses in Q2 FY2025 increased to $24.5 million compared to $20.7 million in Q2 FY2024. This increase is largely due to expenses incurred by the companies we acquired in the past twelve months. Net income applicable to common shares for the quarter was $5 million or 7 cents diluted earnings per share, compared to net income of $3.1 million or 4 cents diluted earnings per share in the prior period. Adjusted EBITDA was $10.7 million in the second quarter compared to $8.5 million in the prior year period, an increase of 26%. We ended the second quarter with cash and cash equivalents of $27.7 million. As we mentioned in our previous call, the decrease in our cash balance compared to our year-ending balance as of June 30, 2024, is due to the timing of payments made to our customers for transaction processing. This normalized in Q2 2025 and we had a slight growth in our operating cash balance for the quarter. We anticipate cash from operating activities should grow throughout the rest of the year in line with the guidance we provided. Continuing with the balance sheet, we have recently refinanced and upsized our credit facility. The new facility provides for a $40 million term loan, a $30 million revolving credit facility, and a $30 million delayed draw term loan, a total of $100 million. The growth and profitability we have experienced over the past several years have allowed us to secure this facility with very competitive rates. This strengthens our balance sheet and provides flexibility for future uses of capital. The proceeds from the $40 million term loan were used to repay borrowings under our previous term loan and revolving credit facility. To date, the company has not borrowed against the new revolving credit facility or the delayed draw. Now turning to our fiscal year 2025 guidance. As we said on our last earnings call and based on what we see today, we are reaffirming the following. Total revenues to be between $308 million and $322 million, representing growth of 15% to 20%. We expect transaction and subscription revenue to also be in the range of 15% to 20%. We expect total US GAAP net income to be between $22 million and $32 million, adjusted EBITDA to be between $44 million and $52 million, and total operating cash flow is expected to be between $24 million and $32 million. With that, we would now like to turn the call back over to the operator for the Q&A session. Operator.

Thank you. We also ask that you please wait for your name and company to be announced before you proceed with your question. One moment while we compile the Q&A roster. The first question that we have today will be coming from the line of Chris Kennedy. Yes. Okay. Good afternoon.

Good afternoon. Thanks for taking the question, and appreciate all the new detail. Can you just talk about the average revenue per unit and how that's evolved? It's gotta be driven kind of by your business mix. Going from traditional vending to micro markets, smart stores, what have you, and how your average ticket price has gone up. Can you just talk about the evolution of your business, please?

Yeah. Sorry, Chris. Happy to do so, and thanks for the question. So overall, we have seen a lot more growth related to the transaction processing. It is due to the fact that we are processing the average ticket size. Has gone up significantly over the past couple of years. When we laid out an investor day, you know, back in December of 2022, we listed out as a customer was to buy every project that we offer at our list price, it would get up to $400 per unit. That still holds true. It's shifted a little bit more and probably could go a little bit higher based on the transaction processing. And then with some of the new software that we've released like our Pick Easy product and receipt analytics.

Because when you add to that, we've also had sales strategies be very intentional about what are the locations we are deploying our solutions into. And are those locations where we can maximize revenue, not just for our customers, but, consequently, for us? So part of it has been to make sure we are not going after marginal customers and lower potential revenue locations.

Understood. Thank you. And then any update on your international strategy? And can you just remind us what your business mix is US versus international? Thanks for taking the questions.

Yeah. We continue to track well on the international front. We did a little bit of, you know, take a couple of steps back to be able to leap forward. We had sold some fairly nice deals and we wanted to make sure that those deployments were very robust and working as well as they possibly could. And that we were maximizing the number of transactions that came through from all those locations. So that's been a tweak. Now we have kind of passed that stage. We are again in the mode of expanding the footprint. And in both Latin America and EMEA, we've also had some nice wins in the last quarter in micro markets as well, which as you know, has been, you know, kind of an appealing new segment of our business. Other than that, in terms of mix, it's really largely stayed the same. We think it'll accelerate further as we execute on our second-half priorities, but as of now, we are tracking to kind of the same mix, which is under 5%.

Got it. Thank you.

Thank you. One moment for the next question. And our next question will be coming from the line of Gary Prestopino of Barrington. Your line is open.

Hi. Good afternoon, Ravi and Scott. Couple of questions here. First of all, on this new lending microlending that you're doing through Cantaloupe Capital. Are you originating whatever loan you are, I would assume it's for equipment or whatever. Are you holding that paper, or do you sell that to your partner that I couldn't write the name down there? Could you explain how this works?

Yeah. We don't hold any of the paper, and we don't even, you know, underwrite the loans. The way this is done is through, as you rightly pointed out, through a partner. The nuance there is we are able to offer customers who are really used to coming to seed software in particular as kind of their ERP and they'll go to a very convenient way to go through a few questions point and click, and then get approved for a loan. And from a partner that they trust, which is us. So it's sort of us being the gateway to this process adds a lot of comfort to our customers and also makes it easier because of our knowledge of their business and their knowledge of our brand and reputation.

Okay. Were you finding that at times some of your smaller clients particularly maybe as you're going more upstream on the equipment side, they were capital constrained, and this would help them to grow their business?

You hit the nail on the head. That is exactly why we did this. In fact, this initiative has been on our roadmap for almost a couple of years. We've just been working really hard to find the right partner, the right solution, and the right user experience, which matters a heck of a lot, especially when you get to that small and medium business segment. And, yeah, the aim was to free up capital constraints so that our customers can buy more micro markets, more cashless payment devices, and subscribe to more seed software. That's ultimately our goal.

Okay. And you're not on the hook for anything then. I just want to make sure I'm clear on that.

That is correct.

Okay. And then just from some of your narrative, Ravi, it strikes me as that really, the growth here is being driven by micro markets in a big way. You know, if you could just segment it out. Is it micro markets, smart stores, and then seed software? I mean, just could you maybe lay out what are some of the key growth drivers where you're having a lot of success with your product lines?

So we've got, as you've seen, healthy growth in both components of our recurring revenue, the transaction payment process, as well as the subscription revenue. On the subscription revenue, the growth is largely driven by an expanded footprint of micro markets, the new smart store product, but also newer locations and in what I would call a mix shift in the locations, where our products are placed. So as I mentioned earlier, you know, when we go from potato chips to cob salad, then the location becomes more valuable, and what we earn from that location becomes more valuable. Similar factors apply to the transaction payment processing because, again, as we deploy smart stores and more marketplaces, the revenue that's generated on transactions per location is significantly higher. And that mix keeps improving. The ARPU keeps improving. So that's a growth driver in itself. We are also seeing now particularly with smart store, the location types that we addressed historically, which were corporate break rooms, you know, in some cases, certain other locations have drastically expanded. Now we are in universities. We are in hospitals. We are in car dealerships. We are in assisted living centers. We're in all kinds of new locations, which is exciting to me. And bodes really well for the future of Cantaloupe.

Great. Thank you so much for answering those questions.

Thank you. One moment for the next question. And the next question will be coming from the line of Mike Latimore of Northland Capital. Please go ahead.

Alright. Great. Yeah. Thanks a lot. Yeah. I'd reach out on the margins and EBITDA growth again here. On the subscription and transaction gross margin, you know, improve. Is this kind of a sustainable level?

Hey, Mike. Yep. Thanks for the question. So we feel absolutely at the sustainable level. We continue to see increases, especially as it relates to the transaction gross margin. When you look at what makes that up, we've seen over the past eighteen months an increase in our take rate. When you look out so quickly, it's pretty even with where it was last quarter. I think we've kind of tapped out on increasing the take rate. We continue to get benefits from the cost reduction measures that we've taken. And a lot of the routing and cost savings that we've done there, we continue to benefit from. And then as the average ticket price is a little bit higher because there's a fixed fee component to our pricing. That'll also help increase the margins.

Try again. Okay. Excellent. And then on subscription growth, the subscription growth rate improved a little bit this quarter. Sounds like MicroMarkets is a good driver of that. You know, I would imagine MicroMarkets and then further enhanced by smart store as well. Continue to benefit subscription. I mean, should we think about, you know, subscription growth rate kind of improving from here?

Yeah. So we did see good acceleration in it this quarter. Last quarter, we were at eleven and a half percent year-over-year growth. This quarter, we're at fourteen point one percent. The guide that we gave for this year was fifteen percent plus and we're still in line with that guide that we provided.

Great. And then six thousand throughout the year.

Yep.

And then I guess just maybe similar, but transaction dollar volume growth, I think, was fifteen point five percent that also improved in the first quarter. Is that tied to micro markets as well?

MicroMarkets and smart stores. That's correct, mostly.

Okay. And we've got the, you know, our operators are really pushing to sell more fresh food, with that, that has a higher ticket price.

And I should Mike, just to make sure we don't over-index on the micro markets and the smart stores, there is a new category which we call internally smart retail or smart vending, if you will. And there is a phenomenon of, you know, selling more headphones and electronics and cosmetics and pharmaceuticals, etcetera, out of smarter, newer generation vending machines. And that also contributes to higher ticket sizes and higher transaction values as well as volumes.

Okay. Makes sense. Thank you.

Thank you. As a reminder, if you would like to ask a question. And our next question will be coming from the line of George Sutton of Craig Hallum. Your line is open.

Thank you. Just a clarification on the microlending program. Given that you have Cantaloupe One, I'm just curious, is there a certain customer scenario where you would look to do one versus the other? Does this suggest any changes in Cantaloupe One?

Thanks, George. That's a really good question and clarification. These are aimed at very different use cases. So Cantaloupe One is primarily aimed at somebody using a hundred percent of our solution and finding a way to scale that without, you know, as far as stretching their balance sheet is the best way I can put it. The microlending product that we have launched goes well beyond that. So our customers can use that to fund working capital. They can use that to fund new equipment purchases. And so they can use it for several things that go beyond just our cashless payment devices, our micro markets, etcetera. And so in that sense, it's a broader canvas, if you will.

Understand. Okay. That's very helpful. And you had mentioned Vendex, I believe, Vendex North. So can you just give us a sense of the feedback you got from both partners and customers with the new product that you showed them?

Well, exceedingly positive. It's a rare scenario of a product where, you know, the demand is far ahead of where we anticipated. And so, you know, we are almost working to ensure that the pace of scaling is the right pace of scaling. But the feedback in North America has been great. And now with Vendex, in Europe has been phenomenal as well.

And then just another driver is it solves for

Sorry. The real driver is it solves for theft. The challenge historically with vending machines has been that they've been perceived as old, especially the coil-based vending machine. And even though, you know, now the modern phone factors are better received, the historical challenge with micro markets has been theft. So they do very well in high trust locations like corporate break rooms. But they do poorly in low trust locations like a transit station, etcetera, where, you know, there's more tendency to have theft. And now with retail theft ticking up more and more, the smart store has been very well received as a kind of solution that solves for all these constraints.

Gotcha. Just one other thing relative to your Cantaloupe advertising that you the program that you launched, and you mentioned the million impressions. Can you give us a sense of what is the economic benefit to you from that? How do you charge for that?

Yeah. So we charge on a there are two or three different models. So there are marketplaces where we can list quote, unquote, our screens. And there it's, you know, their formulas are based on per impression. It's highly automated and fairly standard business model. And we share revenue streams with our customers as well who operate those locations. There is another model where it's bespoke campaigns and bespoke advertising that's either from an interested party who wants to reach those audiences or a manufacturer of products that are sold out of those locations of machines. And there, it's more custom pricing and more custom deals because the impressions are relatively more valuable to them. And it tends to be based on the number of people walking through a location that will actually cast the eyes on it and so it's ultimately boils down to impressions. But those are the broad, you know, two models. There's a marketplace-based model, and there is a custom, you know, we also sell the publisher of the advertising on it models. In both cases, we use this as a way to increase the revenue our customers derive from their existing platform.

Gotcha. Perfect. Okay. Thanks, guys.

Thank you. One moment for the next question. And our next question will be coming from the line of Josh Nichols of B. Riley. Your line is open.

Yeah. Thanks for taking my question and good to see the acceleration in subscription and transaction fee growth quarter over quarter. I'm just kind of curious if you could provide a little bit more color. I know you reaffirmed the guidance but there's a relatively wide range, at least on the top line between, like, the low and the high end. Is that driven mostly by, like, what's gonna happen in terms of equipment sales for the back half of the year? What's kind of the delta of the sweet. Those two, if you could elaborate a little bit, please.

Yeah. Sure. So that is right. It is mostly driven by the larger equipment sales in the back half of the year. With the smart stores that we launched, we're selling the entire store itself. It's not a $250 point of sale device. It's a, you know, $12,000 to $16,000 smart store. And as those ramp up, we're expecting the equipment revenue to ramp up in the back half of the year, especially as we get to the fourth quarter. But with that in mind, still keeping the transaction and subscription revenue growing somewhere between 15% to 20%.

I got it. That makes sense. And then you continually come up above expectations in terms of the profitability. I think you look at, like, the EBITDA trend over the last few quarters, it's been up significantly. I know you reaffirmed $44 million to $52 million, but given the margin profile seeing, are seeing. It seems like it'd be hard-pressed for those margins to come in, like, near the lower end of the range. I'm just trying to think about how to think about the EBITDA guidance for the remainder of the year given the profitability profile, which has improved pretty significantly over the last few quarters.

Yeah. And as we've gone through the year, we're tracking right to the midpoint of our guidance, and that's where we're expecting towards the end of the year as well. So we have seen the increase in the margins that could be a benefit towards as we get through the end of the year. But everything that we see right now, we're still going towards the midpoint of the guidance.

Appreciate it. Thank you.

Thank you. This does conclude the Q&A session. I would like to go ahead and turn the call over to Ravi for closing remarks. Please go ahead.

Thank you, operator. Again, I continue to be very excited about the future of Cantaloupe, both in terms of new products that we've launched and the adoption rates that we are seeing as well as continuing to penetrate the market with our best-in-class seed software as well as cashless payment devices in telematics solutions. We appreciate the engagement and interest of our investors. And with that, we'll conclude this call. Thank you.