Cantaloupe, Inc. (NASDAQ:CTLP) Q2 2023 Earnings Conference Call February 7, 2023 5:00 PM ET Company Participants Ravi Venkatesan - Chief Executive Officer Scott Stewart - Chief Financial Officer Conference Call Participants Chris Kennedy - William Blair Gary Prestopino - Barrington Research James Rush - Craig-Hallum Mike Lattimore - Northland Capital Markets Operator Good day and thank you for standing by. And welcome to the Cantaloupe Second Quarter 2023 Earnings Conference Call. Please be advised that tod ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission file number 001-33365 Cantaloupe, Inc. _______________________________________________________________ (Exact name of registrant as specifie ...

Financial Data and Key Metrics Changes - The company reported a record revenue of $57.8 million for Q1 2023, representing a 26% increase year-over-year [6][28] - Transaction revenue grew by 18% year-over-year, while subscription revenue increased by 11% year-over-year [7] - Adjusted EBITDA was negative $5.4 million, compared to positive $1.9 million in the same quarter of the prior year [11][35] - Gross margin for the quarter was 24.5%, down from 32.5% in the previous year, primarily due to negative gross margins on equipment revenue [29] Business Line Data and Key Metrics Changes - Equipment revenue saw a significant increase of 108% year-over-year, totaling $10.7 million [9][28] - Active customers increased by 21% year-over-year, totaling over 25,000 [9] - Active devices grew by 3% year-over-year, with expectations for acceleration in the next calendar year [10] Market Data and Key Metrics Changes - The company noted a strong demand for cashless payments, with cashless transactions increasing from 51% in January 2020 to 62% by October 2021 [23] - The company is experiencing a steady increase in contactless payments as consumer comfort with mobile and card payments grows [24] Company Strategy and Development Direction - The company is focused on expanding service offerings and software add-ons, particularly in core verticals like food and beverage and smart vending [12] - The Cantaloupe ONE platform is positioned as a bundled subscription model to reduce upfront capital expenditures for customers [14] - The company aims to leverage macroeconomic trends such as labor shortages and rising costs to fuel digital transformation and growth in software offerings [26] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth trajectory of subscription revenue, expecting it to ramp up throughout the year [8][43] - The company is navigating supply chain constraints and inflationary pressures, positioning itself as a key partner for customers seeking to integrate technology [13] - Management reiterated guidance for total revenue between $225 million and $235 million for the fiscal year, representing growth of 10% to 15% [36] Other Important Information - The company completed its migration to the AWS cloud platform, enhancing its ability to scale and replicate offerings across markets [21][57] - The company is maintaining higher than normal inventory levels to meet customer demand amid supply chain challenges [29] Q&A Session Summary Question: Can you talk about the acceleration of subscription revenue? - Management is excited about the acceleration of subscription revenue, driven by the Cantaloupe ONE offering and additional products like RPC [41][42] Question: What were the costs associated with the migration to AWS? - The overall cost was $1.4 million, with less than $1 million in cost of goods sold and about $400,000 to $500,000 in operating expenses [44] Question: Are you getting any traction in the Yoke Payments space? - Management reported exciting traction in the Yoke Payments space, which is expected to positively impact subscription revenue in the coming months [45][46] Question: Should we expect any negative surprises in equipment margins? - Management confirmed that equipment margins are expected to normalize after the upgrade cycle, with no anticipated negative surprises [47][49] Question: Is the business generating revenues at or above pre-pandemic levels? - Management confirmed that revenues are operating well above pre-pandemic levels, with potential for further increases as offices reopen [51][53] Question: Can you discuss the benefits of the AWS move? - The AWS move enhances the ability to replicate software in different geographies and provides a more scalable environment for growth [56][57] Question: How aggressively are you using Remote Price Change for customer acquisition? - Management is using Remote Price Change aggressively for both customer retention and acquisition, noting its value in the marketplace [58][59] Question: How does the hardware component relate to customer growth? - Management indicated that aggressive hardware strategies have helped retain customers, while Cantaloupe ONE is attracting new customers, particularly in the SMB segment [60][62]

Part I [Business](index=5&type=section&id=Item%201.%20Business) The company provides an end-to-end technology platform for the unattended retail market, driven by subscription and transaction fees - Cantaloupe provides an end-to-end technology platform for the unattended retail market, integrating digital payments, software services for inventory management, logistics, and back-office operations[13](index=13&type=chunk) - The majority of revenue comes from **subscription and transaction fees** generated by its ePort® devices and Seed™ software platform, with transaction fees being the most significant revenue driver[14](index=14&type=chunk) - As of June 30, 2022, the company had **225 full-time employees**, a 24% increase from the prior year, with growth concentrated in Sales, Customer Support, and Technology[68](index=68&type=chunk) Key Operating Metrics (as of June 30) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | **Active Customers** | 23,991 | 19,834 | | **Active Devices** | 1.14 million | 1.09 million | [Products and Services](index=6&type=section&id=Item%201.%20Business%20-%20Products%20and%20Services) Offerings include ePort payment hardware, Yoke POS terminals, and the cloud-based Seed software platform for asset management - **Hardware:** Includes the ePort integrated payment device series (e.g., ePort Engage) and Yoke POS terminals for self-checkout in micro-markets[21](index=21&type=chunk)[27](index=27&type=chunk) - **Software:** The Seed platform is a cloud-based solution for asset management, route optimization, and back-office functions, while the Yoke Portal manages micro-market kiosks and add-on services enhance merchandising[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) [Markets and Growth Strategy](index=9&type=section&id=Item%201.%20Business%20-%20Markets%20and%20Growth) The company serves vending and micro-market sectors with a growth strategy focused on customer value, contactless trends, and market expansion - Key markets served include Vending, Micro Markets, Vehicle Services, Amusement & Entertainment, and Laundry[42](index=42&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk) - Growth strategies include expanding services to existing customers, capitalizing on contactless payment trends, penetrating the micro-market vertical, and expanding into adjacent and international markets[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk)[52](index=52&type=chunk) [Risk Factors](index=15&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from economic conditions, operational dependencies, regulatory compliance, and internal control weaknesses [Business and Industry Risks](index=18&type=section&id=Item%201A.%20Risk%20Factors%20-%20Business%20and%20Industry%20Risks) Risks include a history of net losses, potential impacts from economic downturns and pandemics, and reliance on a single large customer - The company has a history of losses, incurring **net losses of $1.7 million, $8.7 million, and $40.6 million** in fiscal years 2022, 2021, and 2020, respectively[105](index=105&type=chunk) - The COVID-19 pandemic has adversely impacted the business through reduced foot traffic and supply chain delays, and its future impact remains uncertain[106](index=106&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk) - A single large customer accounted for **14% of total revenue** in fiscal year 2022, and most service contracts are terminable on 30-60 days' notice[116](index=116&type=chunk)[124](index=124&type=chunk) [Operational and Liquidity Risks](index=21&type=section&id=Item%201A.%20Risk%20Factors%20-%20Operational%20and%20Liquidity%20Risks) Operational success depends on retaining key personnel, securing IT systems, and maintaining relationships with third-party processors - The company relies on key personnel and has experienced **high turnover in several key functions**, which could disrupt operations and delay business goals[131](index=131&type=chunk) - Disruptions to IT systems or security breaches could harm the company's reputation, and the company relies on third-party suppliers for critical services like wireless telecommunications and payment processing[133](index=133&type=chunk)[137](index=137&type=chunk)[139](index=139&type=chunk) - The company may need additional financing and must comply with financial covenants in its credit facility to avoid default[150](index=150&type=chunk)[153](index=153&type=chunk)[155](index=155&type=chunk) [Legal, Regulatory, and Compliance Risks](index=24&type=section&id=Item%201A.%20Risk%20Factors%20-%20Legal%2C%20Regulatory%2C%20and%20Compliance%20Risks) Risks stem from a 2019 internal investigation, ongoing SEC inquiries, and multiple material weaknesses in internal controls - A 2019 internal investigation into financial reporting has resulted in significant expenses and could lead to future claims or enforcement proceedings[161](index=161&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk) - The **DOJ has concluded its investigation** related to the 2019 matter without enforcement action, but inquiries from the SEC are ongoing[170](index=170&type=chunk) - As of June 30, 2022, management concluded that **internal controls over financial reporting were not effective** due to multiple material weaknesses[177](index=177&type=chunk) [Unresolved Staff Comments](index=28&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved comments from SEC staff - The company reports no unresolved staff comments[189](index=189&type=chunk) [Properties](index=28&type=section&id=Item%202.%20Properties) The company leases all its facilities, including its headquarters in Pennsylvania, and believes they are sufficient for current needs Leased Properties | Location | Approximate Monthly Base Rent | Lease Expiration | Approximate Size | | :--- | :--- | :--- | :--- | | Atlanta, Georgia | $21,000 - $22,000 | June 2023 | 11,900 sq. ft. | | Malvern, Pennsylvania | $57,000 - $61,000 | November 2023 | 27,000 sq. ft. | | Metairie, Louisiana* | $15,000 - $16,000 | July 2024 | 7,800 sq. ft. | | Denver, Colorado* | $45,000 - $53,000 | December 2026 | 16,700 sq. ft. | *These office spaces are sub-leased. [Legal Proceedings](index=28&type=section&id=Item%203.%20Legal%20Proceedings) The company is not party to any material pending legal proceedings outside the ordinary course of business - The company is involved in ordinary course litigation and establishes accruals when a loss is probable and reasonably estimable[192](index=192&type=chunk) - Except as noted in the financial statements (Note 18), there are no material pending legal proceedings other than routine litigation[193](index=193&type=chunk) [Mine Safety Disclosures](index=28&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company's operations - This item is not applicable to the company[194](index=194&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=29&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ as "CTLP," with no cash dividends declared due to preferred stock obligations - The company's common stock is traded on The NASDAQ Global Market under the symbol "CTLP"[197](index=197&type=chunk) - No cash dividends have been declared on common stock; as of June 30, 2022, accumulated unpaid dividends on preferred stock were approximately **$17.7 million**[198](index=198&type=chunk) 5-Year Cumulative Total Return Comparison | Period Ending | Cantaloupe, Inc. | US Small-Cap Russell 2000® Index | S&P 500 Information Technology Index | | :--- | :--- | :--- | :--- | | Jun-17 | $100 | $100 | $100 | | Jun-18 | $269 | $116 | $130 | | Jun-19 | $143 | $111 | $146 | | Jun-20 | $135 | $102 | $196 | | Jun-21 | $228 | $163 | $276 | | Jun-22 | $108 | $121 | $236 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Fiscal year 2022 revenue grew 22.9% to $205.2 million, with a reduced net loss of $1.7 million and Adjusted EBITDA of $9.9 million [Results of Operations](index=37&type=section&id=Item%207.%20MD%26A%20-%20Results%20of%20Operations) Revenue growth in FY2022 was driven by increased transaction volumes and equipment sales, improving gross profit and operating loss Key Financial Highlights (FY2022 vs FY2021) | Metric (in thousands) | FY 2022 | FY 2021 | % Change | | :--- | :--- | :--- | :--- | | **Total Revenue** | $205,202 | $166,939 | 22.9% | | Subscription & transaction fees | $168,850 | $139,242 | 21.3% | | Equipment sales | $36,352 | $27,697 | 31.2% | | **Gross Profit** | $64,195 | $54,026 | 18.8% | | **Operating Loss** | $(2,657) | $(8,705) | (69.5%) | | **Net Loss** | $(1,703) | $(8,705) | (80.4%) | Operating Metrics (FY2022 vs FY2021) | Metric | FY 2022 | FY 2021 | % Change | | :--- | :--- | :--- | :--- | | **Active Devices (millions)** | 1.14 | 1.09 | 4.0% | | **Active Customers** | 23,991 | 19,834 | 21.0% | | **Total Dollar Volume (billions)** | $2.3 | $1.8 | 30.0% | - The increase in subscription and transaction revenue was primarily driven by a **30% increase in total dollar volumes processed**, exceeding pre-pandemic levels[249](index=249&type=chunk) - Operating expenses increased by **$4.1 million**, mainly due to higher investments in technology and sales, partially offset by lower G&A expenses[255](index=255&type=chunk) [Non-GAAP Financial Measures - Adjusted EBITDA](index=42&type=section&id=Item%207.%20MD%26A%20-%20Non-GAAP%20Financial%20Measures) Adjusted EBITDA, a key non-GAAP metric, improved to $9.9 million in fiscal year 2022 from $7.6 million in the prior year Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | **Net loss** | $(1,703) | $(8,705) | $(40,595) | | Adjustments | $11,595 | $16,323 | $29,860 | | **Adjusted EBITDA** | $9,892 | $7,618 | $(9,735) | [Liquidity and Capital Resources](index=43&type=section&id=Item%207.%20MD%26A%20-%20Liquidity%20and%20Capital%20Resources) The company held $68.1 million in cash and secured a new credit facility, though operating activities used $8.7 million in cash - As of June 30, 2022, the company had cash and cash equivalents of **$68.1 million**[276](index=276&type=chunk) - In March 2022, the company entered into an amended credit facility with JPMorgan Chase Bank, N.A., providing a **$15 million revolving facility** and a **$25 million term facility**[277](index=277&type=chunk) Cash Flow Summary (in millions) | Cash Flow | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | **Operating Activities** | $(8.7) | $8.2 | $(14.1) | | **Investing Activities** | $(12.2) | $(1.8) | $(2.5) | | **Financing Activities** | $0.9 | $50.1 | $20.9 | Contractual Obligations as of June 30, 2022 (in thousands) | Obligation Type | Total | Less than 1 year | 1-3 years | 3-5 years | | :--- | :--- | :--- | :--- | :--- | | Debt and financing obligations | $17,789 | $809 | $2,436 | $14,544 | | Operating lease obligations | $4,387 | $1,758 | $1,736 | $893 | | Purchase obligations | $21,450 | $12,200 | $9,250 | $0 | | **Total** | **$43,626** | **$14,767** | **$13,422** | **$15,437** | [Quantitative and Qualitative Disclosures About Market Risk](index=45&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate changes on its variable-rate debt, which is not considered material - The company is exposed to market risk from interest rate changes on its variable-rate debt under the Amended JPMorgan Credit Facility, which is tied to the SOFR rate[291](index=291&type=chunk) - A hypothetical **100 basis point increase** in the SOFR rate is not expected to have a material impact on interest expense or the consolidated financial statements[291](index=291&type=chunk) [Financial Statements and Supplementary Data](index=46&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains audited financial statements, on which the auditor issued an unqualified opinion but an adverse opinion on internal controls [Report of Independent Registered Public Accounting Firm](index=47&type=section&id=Item%208.%20-%20Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The auditor issued an unqualified opinion on financial statements but an adverse opinion on internal controls due to material weaknesses - The auditor issued an **unqualified opinion** on the consolidated financial statements[298](index=298&type=chunk) - The auditor issued an **adverse opinion** on the company's internal control over financial reporting as of June 30, 2022, due to material weaknesses[309](index=309&type=chunk) - The identified material weaknesses relate to entity-level controls, information technology controls, and controls over revenue recognition[314](index=314&type=chunk) - The critical audit matter identified was **Revenue Recognition**, specifically the judgment involved in identifying performance obligations within customer contracts[304](index=304&type=chunk)[305](index=305&type=chunk) [Consolidated Financial Statements](index=51&type=section&id=Item%208.%20-%20Consolidated%20Financial%20Statements) Financial statements show total assets of $255.6 million and a net loss of $1.7 million for the fiscal year ended June 30, 2022 Consolidated Balance Sheet Data (in thousands) | | June 30, 2022 | June 30, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $136,580 | $131,279 | | **Total Assets** | $255,632 | $237,672 | | **Total Current Liabilities** | $79,179 | $65,673 | | **Total Liabilities** | $95,661 | $83,141 | | **Total Shareholders' Equity** | $156,833 | $151,393 | Consolidated Statement of Operations Data (in thousands) | | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | **Total Revenues** | $205,202 | $166,939 | $163,153 | | **Gross Profit** | $64,195 | $54,026 | $46,273 | | **Operating Loss** | $(2,657) | $(8,705) | $(39,592) | | **Net Loss** | $(1,703) | $(8,705) | $(40,595) | | **Net Loss per Share (Basic & Diluted)** | $(0.03) | $(0.14) | $(0.66) | [Notes to Consolidated Financial Statements](index=55&type=section&id=Item%208.%20-%20Notes%20to%20Consolidated%20Financial%20Statements) Notes detail the Yoke Payments acquisition, debt facilities, a full valuation allowance against deferred tax assets, and ongoing SEC inquiries - In August 2021, the company acquired Yoke Payments for **$3 million in cash** at closing, resulting in $2.7 million of goodwill[445](index=445&type=chunk)[447](index=447&type=chunk)[450](index=450&type=chunk) - The company's debt as of June 30, 2022, primarily consists of the Amended JPMorgan Credit Facility, which includes a **$15M revolving facility** and a **$25M term facility**[476](index=476&type=chunk) - A **full valuation allowance of $55.3 million** has been recorded against net deferred tax assets as of June 30, 2022, due to the company's history of losses[496](index=496&type=chunk)[499](index=499&type=chunk) - The **DOJ concluded its investigation** related to prior period restatements and will not proceed with enforcement, though inquiries from the SEC remain ongoing[526](index=526&type=chunk)[527](index=527&type=chunk) [Controls and Procedures](index=86&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were not effective as of June 30, 2022 - Management concluded that **disclosure controls and procedures were not effective** as of June 30, 2022, due to material weaknesses in internal control over financial reporting[535](index=535&type=chunk) - **Three material weaknesses** were identified in entity-level controls, IT general controls, and controls over the revenue recognition process[539](index=539&type=chunk)[542](index=542&type=chunk) - Management has begun implementing a remediation plan, with completion expected by the end of fiscal year 2023[544](index=544&type=chunk)[545](index=545&type=chunk) [Other Information](index=89&type=section&id=Item%209B.%20Other%20Information) This section is not applicable - This item is not applicable[550](index=550&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=90&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[554](index=554&type=chunk) [Executive Compensation](index=90&type=section&id=Item%2011.%20Executive%20Compensation) Information is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[555](index=555&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters](index=90&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Shareholder%20Matters) Information is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[556](index=556&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=90&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[557](index=557&type=chunk) [Principal Accounting Fees and Services](index=90&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[558](index=558&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=91&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all exhibits filed with the Form 10-K, including material contracts and required CEO/CFO certifications - Lists all exhibits filed with the Form 10-K, including governance documents, material contracts, and executive employment agreements[560](index=560&type=chunk)[561](index=561&type=chunk) - Includes required certifications from the Chief Executive Officer and Chief Financial Officer pursuant to the Sarbanes-Oxley Act[561](index=561&type=chunk) [Form 10-K Summary](index=93&type=section&id=Item%2016.%20Form%2010-K%20Summary) This section is not applicable - This item is not applicable[565](index=565&type=chunk)

Financial Data and Key Metrics Changes - Q4 2022 revenue reached $58 million, an 18% increase year-over-year, marking an all-time high for quarterly revenue and the fifth consecutive quarter of double-digit growth [8][28] - Full fiscal year revenue increased by 23% to $205 million, also a new company record, with adjusted EBITDA rising 30% to $9.9 million [10][31] - Adjusted EBITDA for Q4 was $2 million, down from $5 million in the prior year due to a one-time sales tax reserve adjustment in the previous year [9][31] - Total gross margin for Q4 was 29.5%, slightly down from 30.2% in the prior year, with subscription and transaction revenue margin at 39.5% [29] Business Line Data and Key Metrics Changes - Combined transaction and subscription revenue grew by 17%, while equipment revenue increased by 22% in Q4 [8][28] - Active customers grew by 21%, while active devices increased by only 4% [9][31] - Equipment revenue is expected to remain flat year-over-year, skewed towards the first half of the fiscal year due to the conclusion of the 3G and EMV upgrade cycles [33] Market Data and Key Metrics Changes - The company is focusing on expanding its leadership position in the U.S. market, with significant enterprise-level relationships established with major clients [21] - The self-service economy is still in its early stages, presenting opportunities for growth [15] Company Strategy and Development Direction - The company is undergoing a fundamental transformation, with a focus on innovation and launching new products [7][16] - A multi-year strategic plan is in place, with an emphasis on executing disciplined growth strategies [15][38] - The Cantaloupe ONE platform is designed to deepen market penetration by offering a bundled subscription model [18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's growth trajectory, with expectations for revenue growth of 10% to 15% in 2023 [33] - The transition to new leadership is seen as a positive step for future growth, with a focus on international expansion and adjacent markets [12][15] Other Important Information - The company has migrated its payment and IoT platforms to Amazon Web Services, enhancing stability and reliability [25] - A new Chief Technology Officer has been appointed to drive innovation and technology scaling [26] Q&A Session Summary Question: Long-term growth and operating margins - Management sees transaction and recurring software growth in the mid-teens, with potential upside from new geographic traction [35][36] Question: Key priorities for the new CEO - The new CEO emphasized executing a robust strategic plan to unlock value [38] Question: Drivers of subscription growth - Subscription growth is driven by increased connections and revenue per connection through add-ons [41][42] Question: Gross margin expectations - Transaction revenue gross margin is expected to remain in the mid-teens, while subscription margins are anticipated to stay between 80% to 85% [44] Question: Equipment sales margins - Management expects equipment sales margins to improve post-upgrade cycles, with strategic opportunities for subsidized deals [48] Question: Customer growth and active devices - The increase in active customers without a corresponding rise in active devices is attributed to equipment upgrades rather than new installations [51]

NASDAQ: CTLP Investor Presentation June 2022 8 9 Disclaimer This presentation contains certain information about Cantaloupe, Inc. (the "Company" or "Cantaloupe"). Information contained in this presentation concerning the Company's industry and the markets in which it operates, including the Company's general expectations and market position, market opportunity and market size, is based on information from the Company's management's estimates and research, as well as from industry and general publications an ...

NASDAQ: CTLP Investor Presentation May 2022 Disclaimer This presentation contains certain information about Cantaloupe, Inc. (the "Company" or "Cantaloupe"). Information contained in this presentation concerning the Company's industry and the markets in which it operates, including the Company's general expectations and market position, market opportunity and market size, is based on information from the Company's management's estimates and research, as well as from industry and general publications and res ...

Cantaloupe, Inc. (NASDAQ:CTLP) Q3 2022 Earnings Conference Call May 5, 2022 5:00 PM ET Company Participants Sean Feeney - Chief Executive Officer Ravi Venkatesan - Chief Operating Officer Scott Stewart - Chief Financial Conference Call Participants Mike Lattimore - Northland Capital Markets George Sutton - Craig-Hallum Cristopher Kennedy - William Blair Operator Welcome to the Cantaloupe Third Quarter Fiscal Year 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After ...

Financial Performance - Total revenues increased by $7.5 million (17.6%) for the three months ended March 31, 2022, compared to the same period in 2021, primarily driven by a $7.5 million increase in subscription and transaction fees[160]. - Total revenues for the nine months ended March 31, 2022, increased by $29.3 million (24.8%) compared to the same period in 2021, driven by a $22.9 million increase in subscription and transaction fees[174]. - Subscription and transaction fees reached $42,143 thousand for the three months ended March 31, 2022, reflecting a 21.5% increase from $34,686 thousand in the same period last year[160]. - Total gross profit for the three months ended March 31, 2022, was $16,200 thousand, a 27.5% increase from $12,704 thousand in the same period last year[160]. - Total gross profit for the nine months ended March 31, 2022, was $47,066 thousand, a 19.9% increase from $39,244 thousand in the same period last year[174]. Expenses and Costs - Operating expenses increased by $0.6 million (4.1%) for the three months ended March 31, 2022, primarily due to a $1.1 million increase in technology and product development expenses[166]. - Total operating expenses for the nine months ended March 31, 2022, were $47.643 million, a slight increase of 0.3% compared to $47.482 million in the same period in 2021[180]. - Cost of sales increased by $21.4 million (27.2%) for the nine months ended March 31, 2022, attributed to a $15.8 million increase in subscription and transaction costs[177]. - Sales and marketing expenses rose by approximately $1.1 million, or 23.6%, to $6.021 million for the nine months ended March 31, 2022, driven by increased advertising and trade show costs[181]. - Technology and product development expenses increased by approximately $5.3 million, or 46.2%, totaling $16.701 million for the nine months ended March 31, 2022, reflecting the company's investment in innovative technologies[182]. - General and administrative expenses decreased by approximately $6.4 million, or 22.6%, to $21.724 million for the nine months ended March 31, 2022, primarily due to reduced reliance on external consultants[183]. Cash Flow and Liquidity - Cash and cash equivalents on hand were $75.1 million as of March 31, 2022, providing a solid liquidity position for the company[190]. - Net cash used in operating activities was $3.9 million for the nine months ended March 31, 2022, reflecting a net income of $0.4 million and $16.2 million utilized by working capital accounts[194]. - Net cash used in investing activities increased to $10.2 million for the nine months ended March 31, 2022, primarily due to the Yoke acquisition and increased property and equipment investments[196]. - Net cash provided by financing activities was $1.0 million for the nine months ended March 31, 2022, mainly from proceeds related to the Amended JPMorgan Credit Facility and stock exercises[198]. Operational Metrics - For the three months ended March 31, 2022, Cantaloupe reported 1.12 million Active Devices, an increase of approximately 40,000 Active Devices, or 4%, compared to the same quarter last year[154]. - The company had 22,818 Active Customers, representing an increase of 4,055 Active Customers, or 22%, from 18,763 in the same quarter last year[154]. - Total Dollar Volume of Transactions for the quarter was $562 million, which is 36% higher compared to the average processing volumes for the quarter ended March 31, 2021[154]. - Active Devices count increased by 3% compared to the same period last year, contributing to revenue growth[161]. Corporate Developments - The Company entered into a $30 million senior secured term loan facility with Antara on October 9, 2019, and repaid all amounts outstanding under this facility by August 14, 2020[109][110]. - The Company completed a private placement on March 4, 2021, raising approximately $55 million from the sale of 5,730,000 shares at $9.60 per share[124]. - The ePort Engage Combo was released in March 2022, enhancing the company's product offerings in the unattended retail market[145]. - Cantaloupe launched the Cantaloupe ONE Platform, a bundled subscription model providing operators with a fixed monthly subscription covering hardware and service fees[145]. - The company entered into an amended credit agreement with JP Morgan Chase Bank, providing a $15 million secured revolving credit facility and a $25 million secured term facility[145]. - On March 17, 2022, the Company entered into an amended credit agreement with JPMorgan Chase Bank, N.A.[205]. Risk and Control - The Company's exposure to market risk has not changed materially since June 30, 2021[205]. - The management, including the CEO and CFO, concluded that the disclosure controls and procedures are effective as of March 31, 2022[207]. - There have been no changes in the Company's internal control over financial reporting during the fiscal quarter ended March 31, 2022, that have materially affected the internal controls[208]. Tax and Compensation - For the nine months ended March 31, 2022, the Company recorded an income tax provision of $226 thousand, compared to $133 thousand for the same period in 2021[113][114]. - The Company recognized stock-based compensation related to stock options of $2.3 million for the nine months ended March 31, 2022, down from $3.8 million for the same period in 2021[117]. - The total expense recognized for consulting agreements related to common stock awards was $0.2 million for the nine months ended March 31, 2022[121][123]. - The Company had no outstanding or exercised warrants during the nine months ended March 31, 2022, compared to 23,978 warrants exercised in March 2021[126][127]. - The expected volatility for stock options granted in the nine months ended March 31, 2022, was between 73.2% and 73.6%[117].

[Part I - Financial Information](index=3&type=section&id=Part%20I%20-%20Financial%20Information) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, shareholders' equity, and cash flows, with detailed notes on accounting policies, acquisitions, debt, and equity [Item 1. Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, statements of shareholders' equity, and statements of cash flows, along with detailed notes explaining significant accounting policies, recent acquisitions, debt arrangements, and equity activities [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' equity at specific points in time **Condensed Consolidated Balance Sheets (Unaudited) - Key Figures ($ in thousands):** | Item | December 31, 2021 | June 30, 2021 | Change | % Change | | :-------------------------------------- | :------------------ | :------------ | :----- | :------- | | Total Assets | $235,092 | $237,672 | $(2,580) | -1.09% | | Cash and cash equivalents | $76,309 | $88,136 | $(11,827) | -13.42% | | Inventory, net | $11,752 | $5,292 | $6,460 | 122.07% | | Goodwill | $66,656 | $63,945 | $2,711 | 4.24% | | Total Liabilities | $79,105 | $83,141 | $(4,036) | -4.85% | | Total Shareholders' Equity | $152,849 | $151,393 | $1,456 | 0.96% | - Total assets saw a slight decrease, primarily due to a reduction in cash and cash equivalents, while inventory significantly increased by **122.07%** and goodwill increased by **4.24%** due to the Yoke acquisition[7](index=7&type=chunk)[9](index=9&type=chunk) - Total liabilities decreased by **4.85%**, and total shareholders' equity experienced a modest increase of **0.96%**[7](index=7&type=chunk)[9](index=9&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section outlines the company's financial performance over specific periods, detailing revenues, expenses, and net loss **Condensed Consolidated Statements of Operations (Unaudited) - Key Figures ($ in thousands, except per share data):** | Item | 3 Months Ended Dec 31, 2021 | 3 Months Ended Dec 31, 2020 | % Change | 6 Months Ended Dec 31, 2021 | 6 Months Ended Dec 31, 2020 | % Change | | :----------------------------------- | :-------------------------- | :-------------------------- | :------- | :-------------------------- | :-------------------------- | :------- | | Total Revenues | $51,091 | $38,285 | 33.4% | $96,871 | $75,162 | 28.9% | | Subscription and transaction fees | $41,188 | $33,214 | 24.0% | $81,812 | $66,322 | 23.4% | | Equipment sales | $9,903 | $5,071 | 95.3% | $15,059 | $8,840 | 70.4% | | Gross Profit | $15,990 | $12,301 | 30.0% | $30,865 | $26,541 | 16.3% | | Operating Loss | $(320) | $(2,582) | 87.6% | $(1,459) | $(6,220) | 76.5% | | Net Loss | $(468) | $(2,902) | 83.9% | $(1,760) | $(9,515) | 81.5% | | Basic and Diluted Net Loss Per Share | $(0.01) | $(0.04) | 75.0% | $(0.03) | $(0.15) | 80.0% | - The company demonstrated strong revenue growth, with total revenues increasing by **33.4%** for the three months and **28.9%** for the six months ended December 31, 2021, compared to the prior year[14](index=14&type=chunk) - This growth was primarily driven by significant increases in both subscription and transaction fees and equipment sales, leading to substantial reductions in operating loss and net loss, improving by over **75%** for both periods[14](index=14&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) This section details changes in the company's equity accounts, including common stock, accumulated deficit, and total shareholders' equity **Condensed Consolidated Statements of Shareholders' Equity (Unaudited) - Key Figures ($ in thousands, except share data):** | Item | December 31, 2021 | June 30, 2021 | Change | | :----------------------------------- | :------------------ | :------------ | :----- | | Common Shares Outstanding | 70,987,498 | 71,258,047 | (270,549) | | Common Stock Amount | $465,990 | $462,775 | $3,215 | | Accumulated Deficit | $(313,141) | $(311,382) | $(1,759) | | Total Shareholders' Equity | $152,849 | $151,393 | $1,456 | - Total shareholders' equity increased by **$1.46 million** from June 30, 2021, to December 31, 2021, primarily due to stock-based compensation and exercises, partially offset by the net loss for the period[17](index=17&type=chunk) - The accumulated deficit increased by **$1.76 million**[17](index=17&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section summarizes the cash inflows and outflows from operating, investing, and financing activities over specific periods **Condensed Consolidated Statements of Cash Flows (Unaudited) - Key Figures ($ in thousands):** | Cash Flow Activity | 6 Months Ended Dec 31, 2021 | 6 Months Ended Dec 31, 2020 | Change | | :------------------------------------------ | :-------------------------- | :-------------------------- | :----- | | Net cash (used in) provided by operating activities | $(4,247) | $(654) | $(3,593) | | Net cash used in investing activities | $(7,259) | $(959) | $(6,300) | | Net cash used in financing activities | $(321) | $(1,938) | $1,617 | | Net (decrease) increase in cash and cash equivalents | $(11,827) | $(3,551) | $(8,276) | | Cash and cash equivalents at end of period | $76,309 | $28,162 | $48,147 | - Net cash used in operating activities increased significantly to **$4.25 million** for the six months ended December 31, 2021, primarily due to increased inventory and reduction in accounts payable[22](index=22&type=chunk) - Net cash used in investing activities also rose substantially to **$7.26 million**, driven by the Yoke acquisition and increased property and equipment purchases[22](index=22&type=chunk) - Conversely, net cash used in financing activities decreased to **$0.32 million** due to lower debt repayments compared to the prior year's refinancing activities[22](index=22&type=chunk) [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies, acquisitions, debt, and equity [1. BUSINESS](index=9&type=page&id=1.%20BUSINESS) Cantaloupe, Inc., formerly USA Technologies, Inc., is a digital payments and software services company providing end-to-end technology solutions for the unattended retail market - Company name changed from USA Technologies, Inc. to Cantaloupe, Inc., effective April 15, 2021, with common stock trading under 'CTLP' on NASDAQ[25](index=25&type=chunk) - Cantaloupe provides end-to-end technology solutions for the unattended retail market, including payments processing, inventory management, route logistics, and back-office management[26](index=26&type=chunk) - The COVID-19 pandemic continues to affect operations, but the company concluded no material impairments to goodwill, intangible assets, or long-lived assets as of December 31, 2021[27](index=27&type=chunk) [2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=9&type=page&id=2.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines the basis of presentation for the unaudited interim financial statements, detailing changes in presentation, adoption of new accounting pronouncements, and evaluation of others - The company revised its operating expense presentation, disaggregating 'Selling, general, and administrative costs' into 'Sales and marketing,' 'Technology and product development,' and 'General and administrative costs' for increased transparency[33](index=33&type=chunk) - The revenue caption 'License and transaction fees' was revised to 'Subscription and transaction fees' to better describe the revenue stream and align with industry terminology[40](index=40&type=chunk) - Adopted ASC 326 (Credit Losses) on July 1, 2020, using a modified retrospective approach, shifting to an expected loss model for accounts and finance receivables[41](index=41&type=chunk) - Evaluating the impact of ASU 2020-04/2021-01 (Reference Rate Reform), ASU 2021-05 (Lessor Classification), and ASU 2020-06 (Debt and Equity Instruments) for future adoption[45](index=45&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk) [3. LEASES](index=12&type=page&id=3.%20LEASES) The company's lease arrangements primarily consist of operating leases for office space, warehouses, and equipment, with lease liabilities and assets reported on the balance sheet **Lease Balances ($ in thousands):** | Item | December 31, 2021 | June 30, 2021 | | :----------------------------------- | :------------------ | :------------ | | Operating lease assets | $2,949 | $3,049 | | Total lease liabilities | $4,619 | $4,811 | **Operating Lease Costs ($ in thousands):** | Period | 2021 | 2020 | | :----------------------------------- | :--- | :--- | | Three months ended December 31 | $443 | $535 | | Six months ended December 31 | $885 | $1,064 | - Maturities of lease liabilities total **$5.25 million**, with **$0.86 million** due in the remainder of fiscal year 2022[52](index=52&type=chunk) [4. REVENUE](index=13&type=page&id=4.%20REVENUE) Revenue is now disaggregated into 'Transaction fees' and 'Subscription fees' to provide greater transparency, with details on future performance obligations and contract liabilities - Revenue is disaggregated into 'Transaction fees' (percentage rate on volumes processed) and 'Subscription fees' (monthly service fees for cashless payments, rental programs, and Seed software services)[54](index=54&type=chunk) **Disaggregated Revenue ($ in thousands):** | Revenue Category | 3 Months Ended Dec 31, 2021 | 3 Months Ended Dec 31, 2020 | 6 Months Ended Dec 31, 2021 | 6 Months Ended Dec 31, 2020 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Transaction fees | $26,775 | $20,454 | $53,195 | $40,131 | | Subscription fees | $14,413 | $12,760 | $28,617 | $26,191 | | Equipment sales | $9,903 | $5,071 | $15,059 | $8,840 | | **Total Revenues** | **$51,091** | **$38,285** | **$96,871** | **$75,162** | - Total transaction price allocated to future performance obligations is **$36.30 million** as of December 31, 2021, with **$7.02 million** expected to be recognized in 2022[59](index=59&type=chunk) [5. ACQUISITION](index=15&type=page&id=5.%20ACQUISITION) In August 2021, Cantaloupe acquired certain assets and liabilities of Yoke Payments, a micro market payments company, to expand self-checkout offerings and integrate with existing platforms - Acquired Yoke Payments (Delicious Nutritious LLC) in August 2021 to extend self-checkout capabilities and integrate with Cantaloupe's inventory management and payment processing platforms[66](index=66&type=chunk)[67](index=67&type=chunk) **Yoke Acquisition Consideration and Allocation ($ in thousands):** | Item | Amount | | :-------------------------------------- | :----- | | Cash Consideration | $2,966 | | Contingent Consideration Arrangement | $1,000 | | **Total Consideration Transferred** | **$3,966** | | Identifiable Intangible Assets | $1,235 | | Goodwill | $2,710 | - Goodwill of **$2.71 million** recognized from the acquisition includes expected synergies and intangible assets not separately recognized, and is deductible for income tax purposes[72](index=72&type=chunk) [6. FINANCE RECEIVABLES](index=16&type=page&id=6.%20FINANCE%20RECEIVABLES) Finance receivables primarily consist of devices financed under the QuickStart program and Seed platform, mostly structured as 60-month sales-type leases, with credit risk monitored by customer transaction revenue to lease payment ratio - Finance receivables are mainly non-cancellable sixty-month sales-type leases for devices under the QuickStart program and Seed platform[74](index=74&type=chunk) **Total Finance Receivables, Net ($ in thousands):** | Date | Amount | | :------------------ | :----- | | December 31, 2021 | $19,153 | | June 30, 2021 | $19,599 | - Credit risk is assessed by categorizing customers into 'high ratio' (adequate transaction processing volumes) and 'low ratio' (insufficient volumes) based on their gross sales to required monthly lease obligations[77](index=77&type=chunk)[78](index=78&type=chunk) [7. LOSS PER SHARE CALCULATION](index=19&type=page&id=7.%20LOSS%20PER%20SHARE%20CALCULATION) The basic and diluted loss per share calculations are presented, showing a significant improvement in net loss per common share for both the three and six months ended December 31, 2021 **Net Loss Per Common Share ($):** | Period | 2021 | 2020 | | :----------------------------------- | :----- | :----- | | Three months ended December 31 | $(0.01) | $(0.04) | | Six months ended December 31 | $(0.03) | $(0.15) | - Approximately **4 million** anti-dilutive shares were excluded from the diluted loss per share calculation for the three and six months ended December 31, 2021[86](index=86&type=chunk) [8. GOODWILL AND INTANGIBLES](index=20&type=page&id=8.%20GOODWILL%20AND%20INTANGIBLES) This section details the company's intangible assets and goodwill, noting an increase due to the Yoke acquisition and no impairment charges recognized during the reported periods **Intangible Assets and Goodwill ($ in thousands):** | Item | December 31, 2021 (Net) | June 30, 2021 (Net) | | :-------------------------- | :---------------------- | :-------------------- | | Brand and tradenames | $723 | $800 | | Developed technology | $4,004 | $4,049 | | Customer relationships | $14,879 | $15,143 | | **Total Intangible Assets** | **$19,606** | **$19,992** | | Goodwill | $66,656 | $63,945 | - Goodwill increased by **$2.71 million** due to the Yoke acquisition[88](index=88&type=chunk)[90](index=90&type=chunk) - The company performs an annual goodwill impairment test on April 1 and recognized no impairment charges for the periods ended December 31, 2021 and 2020[88](index=88&type=chunk)[90](index=90&type=chunk) - Amortization expense for intangible assets was **$0.9 million** for the three months and **$1.6 million** for the six months ended December 31, 2021[88](index=88&type=chunk) [9. DEBT AND OTHER FINANCING ARRANGEMENTS](index=20&type=page&id=9.%20DEBT%20AND%20OTHER%20FINANCING%20ARRANGEMENTS) The company's debt primarily consists of the 2021 JPMorgan Credit Facility, including a secured revolving credit facility and a secured term facility, with details on interest expense, repayment terms, and financial covenants **Debt and Other Financing Arrangements ($ in thousands):** | Item | December 31, 2021 | June 30, 2021 | | :----------------------------------- | :------------------ | :------------ | | 2021 JPMorgan Credit Facility | $14,063 | $14,437 | | Total Debt, Net of Discounts | $13,972 | $14,319 | | Debt and other financing arrangements, noncurrent | $13,124 | $13,644 | **Total Interest Expense ($ in thousands):** | Period | 2021 | 2020 | | :----------------------------------- | :--- | :--- | | Three months ended December 31 | $475 | $596 | | Six months ended December 31 | $953 | $3,881 | - The 2021 JPMorgan Credit Facility includes a **$5 million** secured revolving credit facility and a **$15 million** secured term facility with a three-year maturity[96](index=96&type=chunk)[97](index=97&type=chunk) - The interest rate is LIBOR or Prime Rate plus an applicable spread[96](index=96&type=chunk)[97](index=97&type=chunk) - The company was in compliance with its financial covenants (adjusted quick ratio and total leverage ratio) as of December 31, 2021[99](index=99&type=chunk)[100](index=100&type=chunk) [10. ACCRUED EXPENSES](index=23&type=page&id=10.%20ACCRUED%20EXPENSES) Accrued expenses include various liabilities such as sales tax reserve, compensation, operating lease liabilities, professional fees, and a contingent consideration arrangement related to the Yoke acquisition **Accrued Expenses ($ in thousands):** | Item | December 31, 2021 | June 30, 2021 | | :------------------------------------------ | :------------------ | :------------ | | Sales tax reserve | $17,635 | $17,099 | | Accrued compensation and related sales commissions | $3,225 | $4,233 | | Operating lease liabilities, current | $1,465 | $1,166 | | Accrued professional fees | $2,839 | $1,739 | | Contingent consideration arrangement for the Yoke acquisition | $1,000 | $0 | | **Total Accrued Expenses** | **$28,721** | **$26,460** | [11. INCOME TAXES](index=23&type=page&id=11.%20INCOME%20TAXES) The company recorded income tax provisions for the three and six months ended December 31, 2021, primarily related to uncertain tax positions and state taxes **Provision for Income Taxes ($ in thousands):** | Period | 2021 | 2020 | | :----------------------------------- | :--- | :--- | | Three months ended December 31 | $102 | $49 | | Six months ended December 31 | $191 | $89 | - The company maintains a full valuation allowance against its deferred tax assets and had a total unrecognized income tax benefit of **$0.5 million** as of December 31, 2021[106](index=106&type=chunk) [12. EQUITY](index=24&type=page&id=12.%20EQUITY) This section details the company's equity compensation plans, including stock options and restricted stock units, outlining valuation methodologies, performance-based awards, and grants to consultants and executives **Stock Option Valuation Assumptions (Six Months Ended December 31):** | Assumption | 2021 | 2020 | | :----------------------------------- | :------------------ | :------------------ | | Expected volatility (percent) | 73.2% - 73.6% | 76.3% - 77.3% | | Weighted average expected life (years) | 4.5 | 4.5 | | Risk-free interest rate (percent) | 1.0% - 1.2% | 0.2% - 0.4% | | Number of options granted | 495,000 | 650,000 | | Weighted average grant date fair value | $5.72 | $4.69 | - Performance-based stock options for executives vest over three to four years, contingent on achieving specific stock price targets[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk) - Compensation expense for these awards is estimated using a Monte Carlo simulation model[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk) - Total expense recognized for common stock awards for the six months ended December 31, 2021, was **$0.8 million**, including grants of restricted stock units to consultants and executives[117](index=117&type=chunk) [13. COMMITMENTS AND CONTINGENCIES](index=25&type=page&id=13.%20COMMITMENTS%20AND%20CONTINGENCIES) The company is involved in ordinary course litigation, cooperating with a Department of Justice subpoena, and has various operating lease obligations and significant purchase commitments for inventory - The company is a party to litigation and is cooperating fully with a subpoena from the U.S. Department of Justice regarding activities in prior financial reporting periods[118](index=118&type=chunk)[119](index=119&type=chunk) - As of December 31, 2021, the company had firm commitments to purchase approximately **$23 million** in inventory over the next three years[121](index=121&type=chunk) [14. RELATED PARTY TRANSACTIONS](index=25&type=page&id=14.%20RELATED%20PARTY%20TRANSACTIONS) Related party transactions include payments to a consulting firm for payments analytics, where a Board member serves as a strategic advisor, and consulting agreements with a significant shareholder involving grants of restricted stock units - The company pays a success fee to a consulting firm for payments analytics, where a Board member is a strategic advisor, with **$0.8 million** expense recognized for the six months ended December 31, 2021[122](index=122&type=chunk) - Consulting agreements with Hudson Executive Capital LP, a greater than **10%** shareholder, resulted in grants of restricted stock units to consultants[115](index=115&type=chunk)[123](index=123&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance and condition, highlighting strong revenue growth, operational improvements, strategic investments, and a significant reduction in net loss [Forward-Looking Statements](index=26&type=section&id=Forward-Looking%20Statements) This section highlights that the report contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially[126](index=126&type=chunk) - Key risk factors include general economic conditions (COVID-19, supply chain, inflation), compliance with financial covenants, ability to raise funds, competition, customer retention, product acceptance, intellectual property, system disruptions, internal control weaknesses, and ongoing investigations[126](index=126&type=chunk) [OVERVIEW OF THE COMPANY](index=27&type=section&id=OVERVIEW%20OF%20THE%20COMPANY) Cantaloupe, Inc. is a digital payments and software services company for the unattended retail market, offering comprehensive solutions for payments, inventory, logistics, and back-office management - Cantaloupe, Inc. (formerly USA Technologies, Inc.) is a digital payments and software services company for the unattended retail market, offering solutions for payments, inventory, logistics, and back-office management[129](index=129&type=chunk)[130](index=130&type=chunk) **Revenue Mix (Percentage of Total Revenues):** | Revenue Type | 3 Months Ended Dec 31, 2021 | 3 Months Ended Dec 31, 2020 | 6 Months Ended Dec 31, 2021 | 6 Months Ended Dec 31, 2020 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Subscription and transaction fees | 81% | 87% | 84% | 88% | | Equipment sales | 19% | 13% | 16% | 12% | - Customers obtain POS electronic payment devices through direct purchase, financing via the QuickStart Program (60-month sales-type leases), or renting via the JumpStart Program (typically 36-month agreements)[131](index=131&type=chunk) [Second Quarter 2022 Highlights](index=28&type=section&id=Second%20Quarter%202022%20Highlights) This section summarizes key achievements and strategic initiatives during the second quarter of fiscal year 2022, including customer and device growth, new partnerships, and product rollouts - Achieved **21,315** Active Customers and **1.12 million** Active Devices on its service[133](index=133&type=chunk) - Partnered with HIVERY, a data-science company specializing in AI technology, to enhance merchandising for Seed customers using AI and Machine Learning[133](index=133&type=chunk) - Successfully rolled out ePort Engage devices, the next generation of digital touchscreen devices, and continued the promotional upgrade program for 2G and 3G devices to 4G LTE[133](index=133&type=chunk) [COVID-19 Update](index=28&type=section&id=COVID-19%20Update) This section provides an update on the ongoing impact of the COVID-19 pandemic on the company's business operations and financial performance - The COVID-19 pandemic, including new variants like Omicron, continues to affect business operations and financial performance, though no material impairments were concluded[134](index=134&type=chunk) - The company cannot reasonably estimate the longer-term repercussions of COVID-19 on its financial condition, results of operations, or cash flows due to potential uncertainty[135](index=135&type=chunk) [QUARTERLY RESULTS OF OPERATIONS](index=29&type=section&id=QUARTERLY%20RESULTS%20OF%20OPERATIONS) This section provides a detailed analysis of the company's financial performance for the quarter, including key operational metrics, revenues, gross profit, and operating expenses [Metrics](index=29&type=page&id=Metrics) This section presents key operational metrics, including active devices, active customers, and transaction volumes, highlighting growth trends **Key Operational Metrics:** | Metric | December 31, 2021 | December 31, 2020 | % Change YoY | | :----------------------------------- | :------------------ | :------------------ | :----------- | | Active Devices (thousands) | 1,123 | 1,083 | 3.7% | | Active Customers | 21,315 | 18,304 | 16.5% | | Total Number of Transactions (millions) | 261.7 | 211.8 | 23.6% | | Total Dollar Volume of Transactions (millions) | 555.3 | 422.6 | 31.4% | - Total Dollar Volumes for the quarter ended December 31, 2021, were **31% higher** compared to the average processing volumes for the quarter ended December 31, 2020[141](index=141&type=chunk) [Revenues and Gross Profit (Three Months Ended December 31, 2021 Compared to Three Months Ended December 31, 2020)](index=31&type=page&id=Revenues%20and%20Gross%20Profit%20(Three%20Months%20Ended%20December%2031,%202021%20Compared%20to%20Three%20Months%20Ended%20December%2031,%202020)) This section analyzes the company's revenues and gross profit for the three months ended December 31, 2021, compared to the same period in the prior year, highlighting growth drivers and margin changes **Revenues and Gross Profit ($ in thousands):** | Item | 3 Months Ended Dec 31, 2021 | 3 Months Ended Dec 31, 2020 | Percent Change | | :----------------------------------- | :-------------------------- | :-------------------------- | :------------- | | Total Revenues | $51,091 | $38,285 | 33.4% | | Subscription and transaction fees | $41,188 | $33,214 | 24.0% | | Equipment sales | $9,903 | $5,071 | 95.3% | | Total Costs of Sales | $35,101 | $25,984 | 35.1% | | Total Gross Profit | $15,990 | $12,301 | 30.0% | | Total Gross Margin | 31.3% | 32.1% | -0.8 pp | - Increase in subscription and transaction fees was driven by a **31% increase** in total dollar volumes, macroeconomic recovery, and growth in Seed services[152](index=152&type=chunk) - Equipment sales surged by **95.3%** due to increased shipments and customer focus on 4G device upgrades ahead of the 3G network discontinuation[153](index=153&type=chunk) [Operating Expenses (Three Months Ended December 31, 2021 Compared to Three Months Ended December 31, 2020)](index=32&type=page&id=Operating%20Expenses%20(Three%20Months%20Ended%20December%2031,%202021%20Compared%20to%20Three%20Months%20Ended%20December%2031,%202020)) This section details the changes in operating expenses for the three months ended December 31, 2021, compared to the prior year, including sales and marketing, technology, and general and administrative costs **Operating Expenses ($ in thousands):** | Category | 3 Months Ended Dec 31, 2021 | 3 Months Ended Dec 31, 2020 | Percent Change | | :----------------------------------- | :-------------------------- | :-------------------------- | :------------- | | Sales and marketing | $1,745 | $1,520 | 14.8% | | Technology and product development | $5,780 | $3,783 | 52.8% | | General and administrative expenses | $7,672 | $8,528 | (10.0)% | | Depreciation and amortization | $1,113 | $1,052 | 5.8% | | **Total Operating Expenses** | **$16,310** | **$14,883** | **9.6%** | - Technology and product development expenses increased by **$2.00 million** (**52.8%**) due to investments in innovative technologies and strengthening the network platform[159](index=159&type=chunk) - General and administrative expenses decreased by **$0.86 million** (**10.0%**), primarily from a **$0.6 million** reduction in professional fees[160](index=160&type=chunk) [Other Income (Expense), Net (Three Months Ended December 31, 2021 Compared to Three Months Ended December 31, 2020)](index=32&type=page&id=Other%20Income%20(Expense),%20Net%20(Three%20Months%20Ended%20December%2031,%202021%20Compared%20to%20Three%20Months%20Ended%20December%2031,%202020)) This section analyzes changes in other income and expense, net, for the three months ended December 31, 2021, compared to the prior year, focusing on interest income and expense **Other Income (Expense), Net ($ in thousands):** | Item | 3 Months Ended Dec 31, 2021 | 3 Months Ended Dec 31, 2020 | Percent Change | | :----------------------------------- | :-------------------------- | :-------------------------- | :------------- | | Interest income | $445 | $325 | 36.9% | | Interest expense | $(475) | $(596) | (20.3)% | | Total other income (expense), net | $(46) | $(271) | 83.0% | - Interest income increased due to a larger finance receivables amount, while interest expense decreased due to a lower interest rate on the 2021 JPMorgan Credit Facility[162](index=162&type=chunk) [Revenues and Gross Profit (Six Months Ended December 31, 2021 Compared to Six Months Ended December 31, 2020)](index=33&type=page&id=Revenues%20and%20Gross%20Profit%20(Six%20Months%20Ended%20December%2031,%202021%20Compared%20to%20Six%20Months%20Ended%20December%2031,%202020)) This section analyzes the company's revenues and gross profit for the six months ended December 31, 2021, compared to the same period in the prior year, highlighting growth drivers and margin changes **Revenues and Gross Profit ($ in thousands):** | Item | 6 Months Ended Dec 31, 2021 | 6 Months Ended Dec 31, 2020 | Percent Change | | :----------------------------------- | :-------------------------- | :-------------------------- | :------------- | | Total Revenues | $96,871 | $75,162 | 28.9% | | Subscription and transaction fees | $81,812 | $66,322 | 23.4% | | Equipment sales | $15,059 | $8,840 | 70.4% | | Total Costs of Sales | $66,006 | $48,621 | 35.8% | | Total Gross Profit | $30,865 | $26,541 | 16.3% | | Total Gross Margin | 31.9% | 35.3% | -3.4 pp | - Subscription and transaction fees increased by **23.4%**, driven by a **34% increase** in total dollar volumes, exceeding pre-pandemic levels, and growth in Seed services[165](index=165&type=chunk) - Total gross margin decreased from **35.3%** to **31.9%**, primarily due to a change in revenue mix with higher transaction fees and an out-of-period adjustment of **$0.8 million** reducing prior period equipment costs[168](index=168&type=chunk) [Operating Expenses (Six Months Ended December 31, 2021 Compared to Six Months Ended December 31, 2020)](index=34&type=page&id=Operating%20Expenses%20(Six%20Months%20Ended%20December%2031,%202021%20Compared%20to%20Six%20Months%20Ended%20December%2031,%202020)) This section details the changes in operating expenses for the six months ended December 31, 2021, compared to the prior year, including sales and marketing, technology, and general and administrative costs **Operating Expenses ($ in thousands):** | Category | 6 Months Ended Dec 31, 2021 | 6 Months Ended Dec 31, 2020 | Percent Change | | :----------------------------------- | :-------------------------- | :-------------------------- | :------------- | | Sales and marketing | $4,084 | $3,119 | 30.9% | | Technology and product development | $11,169 | $6,997 | 59.6% | | General and administrative expenses | $14,936 | $20,525 | (27.2)% | | Depreciation and amortization | $2,135 | $2,120 | 0.7% | | **Total Operating Expenses** | **$32,324** | **$32,761** | **(1.3)%** | - General and administrative expenses decreased by **$5.59 million**, driven by a **$2.9 million** reduction in professional fees and a **$1.8 million** change related to a prior year network incident (including **$0.7 million** insurance recovery)[173](index=173&type=chunk)[174](index=174&type=chunk) - Sales and marketing expenses increased by **$0.97 million** due to higher employee headcount to support business expansion[171](index=171&type=chunk) [Other Income (Expense), Net (Six Months Ended December 31, 2021 Compared to Six Months Ended December 31, 2020)](index=34&type=page&id=Other%20Income%20(Expense),%20Net%20(Six%20Months%20Ended%20December%2031,%202021%20Compared%20to%20Six%20Months%20Ended%20December%2031,%202020)) This section analyzes changes in other income and expense, net, for the six months ended December 31, 2021, compared to the prior year, focusing on interest income and expense **Other Income (Expense), Net ($ in thousands):** | Item | 6 Months Ended Dec 31, 2021 | 6 Months Ended Dec 31, 2020 | Percent Change | | :----------------------------------- | :-------------------------- | :-------------------------- | :------------- | | Interest income | $918 | $675 | 36.0% | | Interest expense | $(953) | $(3,881) | (75.4)% | | Total other income (expense), net | $(110) | $(3,206) | 96.6% | - The significant decrease in interest expense (**75.4%**) was primarily due to the recognition of **$2.6 million** in unamortized debt issuance costs and debt discount related to the repayment of the Antara Term Facility in the prior period[177](index=177&type=chunk) [Non-GAAP Financial Measures - Adjusted EBITDA](index=35&type=section&id=Non-GAAP%20Financial%20Measures%20-%20Adjusted%20EBITDA) This section defines and reconciles Adjusted EBITDA, a non-GAAP measure used for financial and operational decision-making, to U.S. GAAP net loss - Adjusted EBITDA is a non-GAAP measure used for financial and operational decision-making, defined as U.S. GAAP net loss before interest income/expense, income tax, depreciation, amortization, stock-based compensation, and certain other infrequent/unusual losses/gains[178](index=178&type=chunk)[179](index=179&type=chunk) **Adjusted EBITDA Reconciliation ($ in thousands):** | Item | 3 Months Ended Dec 31, 2021 | 3 Months Ended Dec 31, 2020 | 6 Months Ended Dec 31, 2021 | 6 Months Ended Dec 31, 2020 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | U.S. GAAP net loss | $(468) | $(2,902) | $(1,760) | $(9,515) | | EBITDA | $1,031 | $(1,015) | $1,119 | $(3,046) | | Adjustments to EBITDA | $1,368 | $1,973 | $3,129 | $3,482 | | **Adjusted EBITDA** | **$2,399** | **$958** | **$4,248** | **$436** | - Adjusted EBITDA significantly increased to **$2.40 million** for the three months and **$4.25 million** for the six months ended December 31, 2021, reflecting improved operating performance[180](index=180&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=36&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the company's ability to generate and manage cash, detailing sources and uses of capital, and assessing its capacity to meet short-term and long-term obligations [Sources and Uses of Cash](index=36&type=page&id=Sources%20and%20Uses%20of%20Cash) This section outlines the primary sources of capital and potential liabilities, assessing the sufficiency of financial resources to fund operations - Primary capital sources include **$76.31 million** in cash and cash equivalents, cash from operating activities, and up to **$5 million** available on the 2021 JPMorgan Revolving Facility[182](index=182&type=chunk) - The company has estimated **$17.6 million** in potential sales tax and related interest and penalty liabilities as of December 31, 2021[183](index=183&type=chunk) - Management believes current financial resources are sufficient to fund operations for the next twelve months[183](index=183&type=chunk) [Cash Flows](index=37&type=page&id=Cash%20Flows) This section provides a detailed breakdown of cash flows from operating, investing, and financing activities for the six months ended December 31, 2021 - Net cash used in operating activities was **$4.25 million** for the six months ended December 31, 2021, primarily due to a net loss and **$10.1 million** utilized by working capital accounts (e.g., increased inventory, reduced accounts payable)[186](index=186&type=chunk) - Net cash used in investing activities was **$7.26 million**, driven by the **$2.97 million** Yoke acquisition and **$4.4 million** in property and equipment purchases[188](index=188&type=chunk) - Net cash used in financing activities was **$0.32 million**, mainly for **$0.4 million** in repayments on the 2021 JPMorgan Credit Facility[190](index=190&type=chunk) [CONTRACTUAL OBLIGATIONS](index=39&type=section&id=CONTRACTUAL%20OBLIGATIONS) This section states that there were no significant changes to contractual obligations during the reported period compared to the prior fiscal year - No significant changes to contractual obligations were reported during the six months ended December 31, 2021, compared to those disclosed in the Annual Report on Form 10-K for fiscal year ended June 30, 2021[193](index=193&type=chunk) [CRITICAL ACCOUNTING POLICIES](index=39&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) This section states that there were no significant changes to critical accounting policies during the reported period compared to the prior fiscal year - No significant changes to critical accounting policies were reported during the six months ended December 31, 2021, compared to those disclosed in the Annual Report on Form 10-K for fiscal year ended June 30, 2021[194](index=194&type=chunk) [Recent Accounting Pronouncements](index=39&type=section&id=Recent%20Accounting%20Pronouncements) This section directs readers to Note 2 for a description of recent accounting pronouncements and their potential impact - Refer to Note 2 - Summary of Significant Accounting Policies for a description of recent accounting pronouncements[195](index=195&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's exposures to market risk have not materially changed since June 30, 2021, with further details available in the Annual Report on Form 10-K - The company's exposures to market risk have not changed materially since June 30, 2021[196](index=196&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures, concluding they were effective as of December 31, 2021, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of December 31, 2021[199](index=199&type=chunk) - No changes in internal control over financial reporting occurred during the fiscal quarter ended December 31, 2021, that materially affected or are reasonably likely to materially affect internal controls[200](index=200&type=chunk) [Part II - Other Information](index=41&type=section&id=Part%20II%20-%20Other%20Information) This section provides additional information not covered in Part I, including legal proceedings, risk factors, equity sales, defaults, mine safety, other disclosures, exhibits, and signatures [Item 1. Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 13 – Commitments and Contingencies in Part I, Item 1 of this Quarterly Report - Information on legal proceedings is incorporated by reference to Note 13 – Commitments and Contingencies[202](index=202&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) A discussion of the company's risk factors is incorporated by reference from the Annual Report on Form 10-K for the fiscal year ended June 30, 2021, and the Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 - Risk factors are discussed in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2021, and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2021[203](index=203&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report for the period - Not Applicable (N/A)[205](index=205&type=chunk) [Item 3. Defaults Upon Senior Securities](index=41&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults on any senior securities, and the total liquidation preference for Series A Convertible Preferred Stock was $21.8 million as of December 31, 2021 - No defaults on any senior securities were reported[205](index=205&type=chunk) - The total liquidation preference, including accrued and unpaid dividends, on Series A Convertible Preferred Stock was **$21.8 million** as of December 31, 2021[205](index=205&type=chunk) [Item 4. Mine Safety Disclosures](index=41&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) There are no mine safety disclosures to report for the period - Not Applicable (N/A)[207](index=207&type=chunk) [Item 5. Other Information](index=41&type=section&id=Item%205.%20Other%20Information) There is no other information to report for the period - Not Applicable (N/A)[209](index=209&type=chunk) [Item 6. Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents, certifications, and XBRL financial information - Includes Amended and Restated Articles of Incorporation, Second Amended and Restated Bylaws, Certifications of CEO and CFO (pursuant to Rule 13a-14(a) and 18 USC Section 1350), and Inline Extensible Business Reporting Language (iXBRL) financial information[211](index=211&type=chunk) [Signatures](index=43&type=section&id=Signatures) The report is duly signed on behalf of Cantaloupe, Inc. by its Chief Executive Officer, Sean Feeney, and Chief Financial Officer, R. Wayne Jackson, on February 4, 2022 - The report was signed by Sean Feeney, Chief Executive Officer, and R. Wayne Jackson, Chief Financial Officer, on February 4, 2022[213](index=213&type=chunk)[214](index=214&type=chunk)