Cantaloupe(CTLP) - 2022 Q4 - Annual Report

Part I Business 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] - 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] - 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] 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 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][27] - 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][29][30] Markets and Growth Strategy 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][43][44][45][46] - 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][49][50][51][52] Risk Factors The company faces significant risks from economic conditions, operational dependencies, regulatory compliance, and internal control weaknesses Business and Industry Risks 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] - The COVID-19 pandemic has adversely impacted the business through reduced foot traffic and supply chain delays, and its future impact remains uncertain[106][108][109] - 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][124] Operational and Liquidity Risks 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] - 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][137][139] - The company may need additional financing and must comply with financial covenants in its credit facility to avoid default[150][153][155] Legal, Regulatory, and Compliance Risks 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][163][164] - The DOJ has concluded its investigation related to the 2019 matter without enforcement action, but inquiries from the SEC are ongoing[170] - As of June 30, 2022, management concluded that internal controls over financial reporting were not effective due to multiple material weaknesses[177] Unresolved Staff Comments The company reports no unresolved comments from SEC staff - The company reports no unresolved staff comments[189] Properties 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 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] - Except as noted in the financial statements (Note 18), there are no material pending legal proceedings other than routine litigation[193] Mine Safety Disclosures This section is not applicable to the company's operations - This item is not applicable to the company[194] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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] - 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] 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 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 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] - Operating expenses increased by $4.1 million, mainly due to higher investments in technology and sales, partially offset by lower G&A expenses[255] Non-GAAP Financial Measures - Adjusted EBITDA 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 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] - 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] 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 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] - 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] Financial Statements and Supplementary Data 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 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] - 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] - The identified material weaknesses relate to entity-level controls, information technology controls, and controls over revenue recognition[314] - The critical audit matter identified was Revenue Recognition, specifically the judgment involved in identifying performance obligations within customer contracts[304][305] Consolidated Financial Statements 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 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][447][450] - 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] - 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][499] - The DOJ concluded its investigation related to prior period restatements and will not proceed with enforcement, though inquiries from the SEC remain ongoing[526][527] Controls and Procedures 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] - Three material weaknesses were identified in entity-level controls, IT general controls, and controls over the revenue recognition process[539][542] - Management has begun implementing a remediation plan, with completion expected by the end of fiscal year 2023[544][545] Other Information This section is not applicable - This item is not applicable[550] Part III Directors, Executive Officers and Corporate Governance 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] Executive Compensation 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] Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters 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] Certain Relationships and Related Transactions, and Director Independence 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] Principal Accounting Fees and Services 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] Part IV Exhibits, Financial Statement Schedules 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][561] - Includes required certifications from the Chief Executive Officer and Chief Financial Officer pursuant to the Sarbanes-Oxley Act[561] Form 10-K Summary This section is not applicable - This item is not applicable[565]