Ladies and gentlemen, thank for standing by, and welcome to the Cantaloupe Inc. Fourth 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 Fourth 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; Anant Agrawal, 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 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 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.cantaloupe.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..

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 ePort device; touchless vending to allow consumers to scan a machine's unique QR code, view and browse nutritional facts on products then select one 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, Seed Mobile will be upgraded with a modernized look and 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 and 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 markets 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 increase 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 in fiscal year 2022 and beyond.

Wayne, I'll turn it over to you to go over the financials in greater detail..

Thanks, Sean. Good afternoon, everyone. From a financial perspective, we had a very good quarter. We reported record revenues for the fourth quarter of FY 2021 of $49 million, a 50.2% increase year-over-year and a 14.6% increase sequentially.

License and transaction revenue totaled $38.2 million for the fourth quarter, a 37.3% increase year-over-year and a sequential increase of 10.2%.

Equipment sales for the fourth quarter were $10.8 million, a 124.5% year-over-year increase and a 33.6% increase sequentially as we gain momentum on converting our customers to 4G as well as continued growth of our current customer count.

Active devices, defined as devices that have communicated or transacted with the Company in the last 12 months, totaled 1.1 million 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 third quarter of FY '21.

As we exited FY '21, 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 fourth quarter and 29.7% in the third quarter of FY 2021. Transaction revenues were significantly higher in the current quarter than prior year resulting in L&T margins of 39.3% in the fourth quarter of this year compared to 42.3% in Q4 of last year.

While gross margin was down for the quarter, L&T gross profit increased 27.7% in the current quarter over the prior year. Equipment margin for Q4 FY '21 improved by 11.8 points to negative 2.3 from negative 14.1% in the prior year.

Operating expenses in the fourth quarter totaled $15.2 million compared to $21.5 million in Q4 FY '20, a 29% decrease over the prior year, driven by lower SG&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 $5.9 million in Q4 of last year.

SG&A expenses for the quarter totaled $14.3 million compared to $13.7 million for Q3 and $14.5 million for the prior year quarter. Operating loss in the quarter was $467,000 compared to a loss of $10.4 million in the fourth quarter of the prior year.

Net income applicable to common shareholders for the fourth quarter was $2.7 million or $0.04 per share compared to a loss of $11.4 million or $0.18 per share in the prior year period. Adjusted EBITDA was $5 million in the fourth quarter compared to $2 million in the third quarter and a negative $2.1 million 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 $2.9 million, resulting from a reduction in accrued sales tax due to a state tax law change in the fourth quarter.

Relating to our balance sheet and liquidity, we ended fiscal year 2020 with cash and cash equivalents of $88 million. Turning to FY '22. We are introducing our guidance for the year.

As mentioned previously, we exited FY '21 with positive momentum in our core business and we'll introduce new products and solutions that will help drive growth in FY '22 and beyond. Therefore, for FY '22, we expect revenue to be between $200 million and $210 million.

Net loss applicable to common shares is expected to be between $7 million and $5 million. Adjusted EBITDA to range between $8.5 million and $10.5 million. We expect to generate $8 million to $10 million in cash flow from operations. And lastly, capital expenditures will range from $12 million to $14 million.

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 Cantaloupe, including the momentum going into FY 2022, where we are expecting top line revenue growth of between 20% and 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..

[Operator Instructions] 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 normal 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 could probably be coming back in September, seem to be pushing back, and that's the one area that is kind of dragging in the 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 '20, 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&A activity pick up in the segment, and that should be good for us as a number of the larger operators or 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. Transacting volumes and you'll see the full year in the K that we're going to file tomorrow. So, the number of transactions for the quarter was 242 million. The dollar volume for the quarter was $515 million..

[Operator Instructions] Our next question comes from George Sutton with Craig-Hallum. Your line is open..

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 with -- to answer your question..

Yes, George. So this is Ravi Venkatesan. The campus card launch is this fall, and we should see impact from that in our third quarter 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 third and fourth quarter 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?.

cost efficiency savings and increased revenue on the point-of-sale device..

[Operator Instructions] Our next question comes from Chris Kennedy of William Blair. Your line is open..

And can you give any more financial details, whether it'd be the purchase price, annual revenue or margin profile of Yoke?.

Chris thanks. We're very excited about the acquisition of Yoke. 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 million, and there's a $1 million 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 three 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 350 and 400 installs. They'll contribute some, but it's an area that we're going to invest quite a bit in, 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 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 things, 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 that 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 which we were further along, but we are doing well there..

Our next question comes from Gary Prestopino of Barrington Research. Your line is open..

I know you can't talk about Yoke too much, but could you give us some idea of how big this point-of-sale market is on the micro markets nationwide?.

So 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 3.1 million vending machines out there, they believe, and the numbers vary from 2.5 million up to as high as 4 million. 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 operations 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% and 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 Yoke..

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 a 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..

I'm showing no further questions at this time. I'd like to turn the call back over to Sean for any for the closing remarks..

Great. Thanks, operator, and thanks all of you for your interest in listening to the call and your support of the Company. 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..

Okay. Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all participating, and have a great day. You may all disconnect..