Cantaloupe(CTLP) - 2024 Q2 - Quarterly Report

Part I - Financial Information Item 1. Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements and accompanying notes for the period Condensed Consolidated Balance Sheets Total assets increased to $302.4 million, driven by growth in accounts receivable, inventory, and equipment Condensed Consolidated Balance Sheets (Selected Data, in thousands) | Metric | Dec 31, 2023 | Jun 30, 2023 | Change | | :-------------------------------------- | :----------- | :----------- | :----- | | Cash and cash equivalents | $43,478 | $50,927 | $(7,449) | | Accounts receivable, net | $40,211 | $30,162 | $10,049 | | Inventory, net | $34,789 | $31,872 | $2,917 | | Total current assets | $131,006 | $123,383 | $7,623 | | Property and equipment, net | $27,751 | $25,281 | $2,470 | | Intangibles, net | $25,400 | $27,812 | $(2,412) | | Goodwill | $92,903 | $92,005 | $898 | | Total assets | $302,388 | $289,612 | $12,776 | | Accounts payable | $50,181 | $52,869 | $(2,688) | | Accrued expenses | $26,955 | $26,276 | $679 | | Long-term debt, less current portion | $37,010 | $37,548 | $(538) | | Operating lease liabilities, non-current | $9,203 | $2,504 | $6,699 | | Total liabilities | $126,572 | $122,020 | $4,552 | | Total shareholders' equity | $173,096 | $164,872 | $8,224 | Condensed Consolidated Statements of Operations The company reported increased revenues and a shift to net income from a prior-year loss for the period Condensed Consolidated Statements of Operations (Selected Data, in thousands, except per share data) | Metric | Three months ended Dec 31, 2023 | Three months ended Dec 31, 2022 | Six months ended Dec 31, 2023 | Six months ended Dec 31, 2022 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Total revenues | $65,359 | $61,330 | $128,042 | $119,112 | | Gross profit | $24,316 | $18,441 | $48,644 | $32,603 | | Operating income (loss) | $3,585 | $(914) | $6,340 | $(9,433) | | Net income (loss) | $3,124 | $(573) | $5,131 | $(9,147) | | Net income (loss) applicable to common shares | $3,124 | $(573) | $4,842 | $(9,481) | | Basic earnings (loss) per common share | $0.04 | $(0.01) | $0.07 | $(0.13) | | Diluted earnings (loss) per common share | $0.04 | $(0.01) | $0.07 | $(0.13) | Condensed Consolidated Statements of Comprehensive Income (Loss) The company reported total comprehensive income, a significant improvement from comprehensive losses in the prior year Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric | Three months ended Dec 31, 2023 | Three months ended Dec 31, 2022 | Six months ended Dec 31, 2023 | Six months ended Dec 31, 2022 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net income (loss) | $3,124 | $(573) | $5,131 | $(9,147) | | Foreign currency translation adjustments | $(24) | — | $(24) | — | | Other comprehensive loss, net of income tax | $(24) | — | $(24) | — | | Total comprehensive income (loss) | $3,100 | $(573) | $5,107 | $(9,147) | Condensed Consolidated Statements of Convertible Preferred Stock and Shareholders' Equity Shareholders' equity increased to $173.1 million, driven by net income and stock-based compensation Condensed Consolidated Statements of Convertible Preferred Stock and Shareholders' Equity (Selected Data, in thousands) | Metric | Dec 31, 2023 | Jun 30, 2023 | | :-------------------------------------- | :----------- | :----------- | | Convertible Preferred Stock Amount | $2,720 | $2,720 | | Common Stock Amount | $480,441 | $477,324 | | Accumulated Deficit | $(307,321) | $(312,452) | | Accumulated Other Comprehensive Loss | $(24) | — | | Total Shareholders' Equity | $173,096 | $164,872 | - During the six months ended December 31, 2023, stock-based compensation contributed $3.043 million to common stock, and net income was $5.131 million[187][190] Condensed Consolidated Statements of Cash Flows Net cash used in operating activities decreased significantly, reflecting improved net income and working capital management Condensed Consolidated Statements of Cash Flows (Selected Data, in thousands) | Metric | Six months ended Dec 31, 2023 | Six months ended Dec 31, 2022 | | :-------------------------------------- | :---------------------------- | :---------------------------- | | Net income (loss) | $5,131 | $(9,147) | | Net cash used in operating activities | $(1,232) | $(16,094) | | Net cash used in investing activities | $(5,912) | $(45,349) | | Net cash (used in) provided by financing activities | $(310) | $21,461 | | Net decrease in cash and cash equivalents | $(7,449) | $(39,982) | | Cash and cash equivalents at end of period | $43,478 | $28,143 | - Cash paid for interest increased to $1,931 thousand for the six months ended December 31, 2023, from $920 thousand in the prior year[196] Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures offering crucial context to the condensed consolidated financial statements 1. BUSINESS Cantaloupe provides end-to-end technology solutions for the self-service commerce industry globally - Cantaloupe, Inc offers a single platform for self-service commerce, encompassing integrated payments processing, software solutions for inventory management, pre-kitting, route logistics, warehouse, and back-office management[199] - The company's solutions are utilized by vending machines, micro-markets, smart retail, laundromats, metered parking terminals, amusement and entertainment venues, and IoT services in North America, Europe, Latin America, and Australia[199] 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the basis of presentation, reclassifications, and recently issued accounting pronouncements Basis of Presentation and Preparation - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and Form 10-Q instructions, and should be read with the June 30, 2023 Annual Report on Form 10-K[201] - The Company operates as one operating segment, with financial information reviewed on a consolidated basis by the CEO[203] - Foreign subsidiary operations are translated using average exchange rates for results and end-of-period rates for balance sheet accounts, with translation adjustments in other comprehensive income (loss)[204] Reclassification - Beginning Q4 fiscal year 2023, Convertible Preferred Stock is presented on the Consolidated Statements of Shareholders' Equity, which was renamed accordingly, with prior period amounts reclassified for conformity[205] Recently Issued Accounting Pronouncements - ASU 2023-09 (Income Taxes) expands income tax disclosure requirements, effective for fiscal years beginning after December 15, 2024 (Company's FY2026)[206][208] - ASU 2023-07 (Segment Reporting) expands reportable segment disclosure requirements, effective for annual periods beginning after December 15, 2023 (Company's FY2025) and interim periods after December 15, 2024 (Company's FY2026)[209] 3. ACCOUNTS RECEIVABLE Accounts receivable, net, increased to $40.2 million, with a corresponding increase in the allowance for credit losses Concentrations - As of December 31, 2023, and June 30, 2023, no single customer accounted for more than 10% of the Company's net accounts receivable[212] Allowance for credit losses - The Company estimates its allowance for credit losses using an expected loss model, primarily based on an aging analysis of receivables and current conditions[213] Rollforward of Allowance for Credit Losses (in thousands) | Metric | Six months ended Dec 31, 2023 | Six months ended Dec 31, 2022 | | :-------------------------------------- | :---------------------------- | :---------------------------- | | Beginning balance of allowance (June 30) | $10,815 | $9,328 | | Provision for expected losses | $2,224 | $1,135 | | Write-offs | $(194) | $(341) | | Balance at December 31 | $12,845 | $10,122 | 4. FINANCE RECEIVABLES Total finance receivables, net, decreased to $17.9 million, primarily consisting of sales-type leases Total Finance Receivables, Net (in thousands) | Metric | Dec 31, 2023 | Jun 30, 2023 | | :-------------------------------------- | :----------- | :----------- | | Current finance receivables, net | $6,221 | $6,668 | | Finance receivables due after one year, net | $11,707 | $13,307 | | Total finance receivables, net | $17,928 | $19,975 | | Allowance for uncollectible receivables | $2,257 | $2,098 | - The Company's finance receivables primarily consist of non-cancellable sixty-month sales-type leases for financed devices under its financing program and devices associated with the Seed platform[219] Rollforward of Allowance for Finance Receivables (in thousands) | Metric | Six months ended Dec 31, 2023 | Six months ended Dec 31, 2022 | | :-------------------------------------- | :---------------------------- | :---------------------------- | | Balance at June 30 | $2,098 | $760 | | Provision for expected losses | $159 | $392 | | Write-offs | — | $(288) | | Balance at December 31 | $2,257 | $864 | 5. LEASES Lease obligations increased significantly due to new and extended office leases, raising right-of-use assets and liabilities Lessee Accounting Operating Lease Balance Sheet Information (in thousands) | Metric | Dec 31, 2023 | Jun 30, 2023 | | :-------------------------------------- | :----------- | :----------- | | Operating lease right-of-use assets | $8,443 | $2,575 | | Total lease liabilities | $9,843 | $3,770 | - Cash paid for operating lease liabilities was $1,220 thousand for the six months ended December 31, 2023, up from $1,064 thousand in the prior year[224] - New operating lease liabilities resulted in $6,657 thousand in lease assets obtained for the six months ended December 31, 2023, including a 73-month extension for the Atlanta office and a new 133-month lease for the Malvern office[224][225] Lessor Accounting Property and Equipment for Operating Lease Rental Program (in thousands) | Metric | Dec 31, 2023 | Jun 30, 2023 | | :-------------------------------------- | :----------- | :----------- | | Cost | $29,316 | $28,398 | | Accumulated depreciation | $(23,942) | $(23,221) | | Net | $5,374 | $5,177 | - Revenue from the device rental program increased to $2.0 million for the three months ended December 31, 2023 (from $1.9 million in 2022) and $4.0 million for the six months ended December 31, 2023 (from $3.7 million in 2022)[228][229] 6. DEBT AND OTHER FINANCING ARRANGEMENTS Total outstanding debt remained stable at $38.1 million, while interest expense increased due to higher rates JPMorgan Chase Bank Credit Agreement Debt and Other Financing Arrangements (in thousands) | Metric | Dec 31, 2023 | Jun 30, 2023 | | :-------------------------------------- | :----------- | :----------- | | JPMorgan Credit Facility | $38,188 | $38,563 | | Total outstanding debt | $38,083 | $38,430 | | Debt and other financing arrangements, noncurrent | $37,010 | $37,548 | Interest Expense (in thousands) | Metric | Three months ended Dec 31, 2023 | Three months ended Dec 31, 2022 | Six months ended Dec 31, 2023 | Six months ended Dec 31, 2022 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | JPMorgan Credit Facility | $899 | $313 | $1,824 | $591 | | Other interest expense | $103 | $205 | $285 | $404 | | Total interest expense | $1,002 | $518 | $2,109 | $995 | - The Amended JPMorgan Credit Facility, with a four-year maturity, has variable interest rates (base rate or SOFR plus margin) and a weighted-average interest rate of approximately 8.9% as of December 31, 2023[157] - The Company was in compliance with its financial covenants for the Amended JPMorgan Credit Facility as of December 31, 2023[160] Expected Maturities of Outstanding Debt (in thousands) | Fiscal Year | Principal Amounts Payable | | :-------------------------------------- | :------------------------ | | 2024 | $573 | | 2025 | $1,333 | | 2026 | $36,323 | | Principal amounts payable | $38,229 | 7. ACCRUED EXPENSES Total accrued expenses increased slightly to $27.0 million, driven by a higher sales tax reserve Accrued Expenses (in thousands) | Metric | Dec 31, 2023 | Jun 30, 2023 | | :-------------------------------------- | :----------- | :----------- | | Sales tax reserve | $14,844 | $13,597 | | Accrued compensation and related sales commissions | $2,965 | $4,069 | | Accrued professional fees | $4,452 | $4,196 | | Other accrued expenses | $1,720 | $762 | | Total accrued expenses | $26,955 | $26,276 | 8. GOODWILL AND INTANGIBLES Net intangible assets decreased to $25.4 million due to amortization, while goodwill increased slightly to $92.9 million Intangible Asset Balances (in thousands) | Metric | Dec 31, 2023 (Net) | Jun 30, 2023 (Net) | | :-------------------------------------- | :----------------- | :----------------- | | Brand and tradenames | $542 | $747 | | Developed technology | $6,362 | $9,122 | | Customer relationships | $18,496 | $17,943 | | Total intangible assets | $25,400 | $27,812 | Goodwill (in thousands) | Metric | Dec 31, 2023 | Jun 30, 2023 | | :-------------------------------------- | :----------- | :----------- | | Goodwill | $92,903 | $92,005 | - Amortization expense related to intangible assets was $1.4 million for the three months and $3.0 million for the six months ended December 31, 2023[165] - No goodwill impairment charges were recognized during the three and six months ended December 31, 2023 and 2022[137] 9. ACQUISITIONS This note details the acquisitions of Three Square Market (32M) and Yoke Payments Three Square Market (32M) - On December 1, 2022, Cantaloupe acquired 32M, a leading provider of software and self-service kiosk-based POS and payment solutions for the micro market industry, expanding its presence and global footprint[138] 32M Acquisition Purchase Price Consideration (in thousands) | Metric | Amount | | :-------------------------------------- | :----- | | Closing cash consideration | $36,600 | | Stock consideration | $4,511 | | Fair value of total consideration transferred | $41,111 | 32M Acquisition Assets Acquired and Liabilities Assumed (in thousands) | Metric | Amount | | :-------------------------------------- | :----- | | Total identifiable assets acquired | $20,349 | | Total liabilities assumed | $(5,443) | | Total identifiable net assets | $14,906 | | Goodwill | $26,205 | | Fair value of total consideration transferred | $41,111 | - Identifiable intangible assets acquired included $7.5 million for developed technology, $7.5 million for customer relationships, and $0.5 million for trade names, amortized over 3-5 years[144] - Goodwill of $26.2 million, deductible for income tax purposes, includes expected synergies and non-separately recognized intangible assets[145] Unaudited Pro Forma Information (32M Acquisition, in thousands) | Metric | Three months ended Dec 31, 2022 | Six months ended Dec 31, 2022 | | :-------------------------------------- | :------------------------------ | :---------------------------- | | Revenues | $64,614 | $127,450 | | Net income (loss) | $1,241 | $(11,184) | Yoke Payments - In August 2021, Cantaloupe acquired Yoke Payments, a micro market payments company, extending its offering to provide self-checkout seamlessly integrated with its inventory management and payment processing platforms[151][152] Yoke Acquisition Consideration and Recognized Amounts (in thousands) | Metric | Amount | | :-------------------------------------- | :----- | | Cash consideration | $2,966 | | Contingent consideration arrangement | $1,000 | | Fair value of total consideration transferred | $3,966 | | Total identifiable net assets | $1,256 | | Goodwill | $2,710 | - Identifiable intangible assets included $0.9 million for developed technology, $0.3 million for customer relationships, and $0.1 million for other intangibles[166] - Goodwill of $2.7 million, deductible for income tax purposes, includes expected synergies and non-separately recognized intangible assets[167] - Pro forma financial information for the Yoke acquisition is not presented due to its immaterial impact on the Company's Consolidated Financial Statements[168] 10. REVENUES Total revenues increased, driven by growth in subscription and transaction fees, while equipment sales decreased Disaggregated Revenues (in thousands) | Revenue Type | Three months ended Dec 31, 2023 | Three months ended Dec 31, 2022 | Six months ended Dec 31, 2023 | Six months ended Dec 31, 2022 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Transaction fees | $37,892 | $32,392 | $74,922 | $63,687 | | Subscription fees | $18,137 | $16,540 | $36,242 | $32,320 | | Subscription and transaction fees | $56,029 | $48,932 | $111,164 | $96,007 | | Equipment sales | $9,330 | $12,398 | $16,878 | $23,105 | | Total revenues | $65,359 | $61,330 | $128,042 | $119,112 | Contract Liabilities Contract Liability Balances (Deferred Revenue, in thousands) | Metric | Three months ended Dec 31, 2023 | Three months ended Dec 31, 2022 | Six months ended Dec 31, 2023 | Six months ended Dec 31, 2022 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Deferred revenue, beginning of period | $1,940 | $2,069 | $1,666 | $1,893 | | Deferred revenue, end of period | $1,788 | $1,970 | $1,788 | $1,970 | | Revenue recognized from beginning balance | $150 | $119 | $242 | $226 | - Changes in contract liability balances are primarily due to timing differences between performance obligation satisfaction and customer payment[2] Future Performance Obligations - The Company will recognize $11.861 million in future revenue from unsatisfied performance obligations as of December 31, 2023, primarily from Cantaloupe ONE rental program contracts (36-month terms)[4] Estimated Future Revenue from Unsatisfied Performance Obligations (in thousands) | Period | As of Dec 31, 2023 | | :-------------------------------------- | :----------------- | | Remainder of fiscal year 2024 | $2,923 | | 2025 | $5,703 | | 2026 | $3,235 | | Total | $11,861 | Contract Costs - As of December 31, 2023, net capitalized costs to obtain contracts were $0.6 million (current assets) and $2.8 million (noncurrent assets), unchanged from June 30, 2023, with no impairment[5] - Amortization of capitalized contract costs was $0.2 million for the three months and $0.5 million for the six months ended December 31, 2023[6] 11. STOCK BASED COMPENSATION Stock-based compensation expense totaled $1.8 million for the six months ended December 31, 2023 Stock Options - The Company uses a Black-Scholes valuation model for stock options with service conditions, basing expected volatility on historical data and using a simplified method for expected term[7] Stock Option Valuation Assumptions and Grants | Metric | Six months ended Dec 31, 2023 | Six months ended Dec 31, 2022 | | :-------------------------------------- | :---------------------------- | :---------------------------- | | Expected volatility (percent) | 61.3% - 69.7% | 74.6% - 77.6% | | Weighted average expected life (years) | 4.2 - 4.5 | 4.4 - 4.6 | | Risk-free interest rate (percent) | 4.2% - 4.3% | 2.7% - 4.1% | | Number of options granted | 125,000 | 1,620,000 | | Weighted average exercise price | $7.11 | $4.58 | | Weighted average grant date fair value | $4.34 | $2.87 | - Stock-based compensation related to stock options was $0.7 million for the three months and $1.8 million for the six months ended December 31, 2023[8] Performance based awards - Stock options awarded to executives vest over three to four years, subject to achieving performance goals (stock price targets) set by the Board[10][11] - Performance goals include stock price targets of $10.50 (FY2021), $13.50 (FY2022), $16.50 (FY2023), and $19.50 (FY2024) based on a 30-trading-day average closing price[11] - Compensation cost for these awards is estimated using a Monte Carlo simulation model, with a benefit of $(0.2) million for the three months and an expense of $0.1 million for the six months ended December 31, 2023[12] Common Stock Awards - Total expense recognized for common stock awards was $0.6 million for the three months and $1.1 million for the six months ended December 31, 2023[13] 12. INCOME TAXES The Company recorded a minimal income tax provision and maintains a full valuation allowance against deferred tax assets - Income tax provision was $0.1 million for the three months and $0.2 million for the six months ended December 31, 2023, primarily for state income/franchise taxes and deferred taxes related to goodwill[14] - As of December 31, 2023, the Company had a total unrecognized income tax benefit of $0.7 million[14] - A full valuation allowance is recorded against deferred tax assets due to historical losses, but there's a reasonable possibility of a partial release within the next 12 months given current and anticipated future earnings[15] 13. EARNINGS (LOSS) PER SHARE CALCULATION The company reported positive basic and diluted earnings per share, a significant improvement from prior-year losses Earnings (Loss) Per Share Calculation (in thousands, except per share data) | Metric | Three months ended Dec 31, 2023 | Three months ended Dec 31, 2022 | Six months ended Dec 31, 2023 | Six months ended Dec 31, 2022 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net income (loss) applicable to common shareholders | $3,124 | $(573) | $4,842 | $(9,481) | | Weighted average shares outstanding (Basic) | 72,743,162 | 71,629,939 | 72,730,563 | 71,418,845 | | Basic earnings (loss) per share | $0.04 | $(0.01) | $0.07 | $(0.13) | | Diluted earnings (loss) per share | $0.04 | $(0.01) | $0.07 | $(0.13) | - Potentially anti-dilutive shares excluded from diluted EPS calculation were approximately 1 million for the three and six months ended December 31, 2023, compared to 5 million in the prior year[18] 14. SHAREHOLDERS' EQUITY AND PREFERRED STOCK The Company retired shares of Series A convertible preferred stock during the prior-year period - In the six months ended December 31, 2022, the Company retired 59,281 shares of Series A convertible preferred stock for $2.45 million[20] - The repurchase was accounted for as a $0.42 million decrease to preferred stock and $1.73 million to common stock, with $0.3 million in excess of fair value recorded as an operating expense[20] 15. COMMITMENTS AND CONTINGENCIES The Company is involved in ordinary course litigation and has commitments related to debt and operating leases Outstanding Debt - The Company has debt and other financing arrangements, with additional information provided in Note 6 - Debt and other financing arrangements[26] Purchase Commitments - As of December 31, 2023, the Company had no material firm purchase commitments over the next year[27] Litigation - The Company is a party to litigation and other proceedings arising in the ordinary course of business, reserving for probable and estimable losses[21] Leases - The Company has entered into various operating lease obligations, with additional information provided in Note 5 - Leases[25] 16. RELATED PARTY TRANSACTIONS The Company incurred expenses for services from a consulting firm affiliated with a Board member - A Board member serves as a strategic advisor to a consulting firm providing payments analytics and advisory services to the Company[28] - Total expense recognized for these services was $0.1 million for both the three and six months ended December 31, 2023 and 2022, included in Cost of subscription and transaction fees[28] 17. SUBSEQUENT EVENTS The Company acquired Cheq Lifestyle Technology, Inc for $4.8 million in cash subsequent to the quarter end - On February 1, 2024, Cantaloupe acquired Cheq Lifestyle Technology, Inc, an innovative fan-facing POS and mobile-first ordering platform, for $4.8 million in cash[29] - A preliminary purchase price allocation for the Cheq acquisition is not yet available due to its close proximity to the filing date[29] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance, operations, and liquidity Forward-Looking Statements This section cautions that the report contains forward-looking statements subject to risks and uncertainties - Forward-looking statements in this Form 10-Q are subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from those contemplated[32] - Key risk factors include general economic conditions (inflation, interest rates), competition, supply chain disruptions, ability to acquire and develop technology, international market risks, and internal control weaknesses[32][34] - The Company undertakes no obligation to publicly revise any forward-looking statement unless required by law[34] OVERVIEW OF THE COMPANY Cantaloupe is a global technology leader in self-service commerce, powering over a million active locations - Cantaloupe, Inc is a global technology leader powering self-service commerce with over a million active locations processing more than a billion transactions annually[35] - The company's vertically integrated solutions include micro-payments processing, enterprise cloud software, IoT technology, and kiosk/POS innovations, used in vending, micro markets, laundromats, parking, and entertainment venues across North America, Europe, Latin America, and Australia[35] - For the six months ended December 31, 2023, approximately 87% of revenues were derived from subscription and transaction fees, with the remainder from equipment sales[36] Key Developments during the Quarter Key developments include growth in active customers and devices, a 6.6% revenue increase, and strategic product launches - As of December 31, 2023, the Company had approximately 30,027 Active Customers and 1.23 million Active Devices on its service[39] - Revenues for the quarter were $65.4 million, a 6.6% increase year-over-year, primarily due to higher transaction and subscription fees[39] - The Company showcased its solutions at Cantaloupe LIVE Mexico and NACS Show 2023, and launched Seed Analytics and Seed Intelligence, new premium analytics tools[39] QUARTERLY RESULTS OF OPERATIONS This section details financial performance, highlighting revenue growth, margin improvements, and operating expense changes Selected Operating Metrics Operating metrics show strong growth in active devices, active customers, and total transaction dollar volume - The Company uses Active Devices, Active Customers, Total Number of Transactions, Total Dollar Volume, Average Revenue Per Unit (ARPU), and Adjusted EBITDA (non-GAAP) to evaluate business performance[43] - Active Devices are those that have communicated or transacted in the last twelve months[44] - Active Customers are defined as all customers with at least one active device[51] Selected Operating Metrics | Metric | Dec 31, 2023 | Sep 30, 2023 | Jun 30, 2023 | Mar 31, 2023 | Dec 31, 2022 | | :-------------------------------------- | :----------- | :----------- | :----------- | :----------- | :----------- | | Active Devices (thousands) | 1,226 | 1,192 | 1,168 | 1,150 | 1,150 | | Active Customers | 30,027 | 29,670 | 28,584 | 27,598 | 26,335 | | Total Number of Transactions (millions) | 286.7 | 283.6 | 278.6 | 267.8 | 273.7 | | Total Dollar Volume of Transactions (millions) | $730.1 | $724.8 | $703.5 | $653.6 | $649.4 | | Subscription and transaction fees - Trailing 12 months (thousands) | $215,380 | $208,283 | $200,223 | $192,147 | $183,045 | | Average revenue per unit (ARPU) | $181.91 | $178.78 | $173.39 | $167.52 | $160.46 | - Active Devices increased by 6.6% YoY to 1.23 million, Active Customers increased by 14.0% YoY to 30,027, and Total Dollar Volume of Transactions increased by 12.4% YoY to $730.1 million for the quarter ended December 31, 2023[53] FINANCIAL PERFORMANCE Financial performance showed strong growth in revenues and gross profit, driven by increased subscription and transaction fees Three Months Ended December 31, 2023 Compared to Three Months Ended December 31, 2022 Three Months Ended December 31, 2023 vs 2022 (in thousands) | Metric | 2023 | 2022 | Change Amount | Percentage Change | | :-------------------------------------- | :--- | :--- | :------------ | :---------------- | | Subscription and transaction fees | $56,029 | $48,932 | $7,097 | 14.5% | | Equipment sales | $9,330 | $12,398 | $(3,068) | (24.7)% | | Total revenues | $65,359 | $61,330 | $4,029 | 6.6% | | Total costs of sales | $41,043 | $42,889 | $(1,846) | (4.3)% | | Total gross profit | $24,316 | $18,441 | $5,875 | 31.9% | | Total gross margin | 37.2% | 30.1% | | | - Increase in subscription and transaction fees was driven by a 12.4% increase in total dollar volumes of transactions and a 14.0% increase in Active Customers, with the 32M acquisition contributing $3.3 million[60] - Decrease in equipment sales was due to decreased shipments after the completion of the 3G to 4G network upgrade in the U.S. market, leading to improved equipment margin[61] Operating Expenses - Three Months Ended December 31, 2023 vs 2022 (in thousands) | Operating Expense Category | 2023 | 2022 | Change Amount | Percentage Change | | :-------------------------------------- | :--- | :--- | :------------ | :---------------- | | Sales and marketing | $4,367 | $3,210 | $1,157 | 36.0% | | Technology and product development | $3,030 | $5,299 | $(2,269) | (42.8)% | | General and administrative expenses | $10,505 | $6,559 | $3,946 | 60.2% | | Integration and acquisition expenses | $93 | $2,787 | $(2,694) | (96.7)% | | Depreciation and amortization | $2,736 | $1,350 | $1,386 | 102.7% | | Total operating expenses | $20,731 | $19,355 | $1,376 | 7.1% | - Sales and marketing expenses increased due to higher employee headcount. Technology and product development decreased due to lower expensed personnel costs and higher capitalized internal-use software costs[66][67] - General and administrative expenses increased due to compensation, bad debt, and remediation work for internal control weaknesses. Integration and acquisition expenses decreased significantly as the 32M integration completed[68][69] Other Income (Expense), Net - Three Months Ended December 31, 2023 vs 2022 (in thousands) | Metric | 2023 | 2022 | Change Amount | Percentage Change | | :-------------------------------------- | :--- | :--- | :------------ | :---------------- | | Interest income from leases | $493 | $878 | $(385) | (43.8)% | | Interest expense | $(1,002) | $(518) | $(484) | (93.4)% | | Total other (expense) income, net | $(380) | $383 | $(763) | 199.2% | - Interest expense increased due to additional borrowing of $25 million to fund a portion of the 32M acquisition[71] Six Months Ended December 31, 2023 Compared to Six Months Ended December 31, 2022 Six Months Ended December 31, 2023 vs 2022 (in thousands) | Metric | 2023 | 2022 | Change Amount | Percentage Change | | :-------------------------------------- | :--- | :--- | :------------ | :---------------- | | Subscription and transaction fees | $111,164 | $96,007 | $15,157 | 15.8% | | Equipment sales | $16,878 | $23,105 | $(6,227) | (27.0)% | | Total revenues | $128,042 | $119,112 | $8,930 | 7.5% | | Total costs of sales | $79,398 | $86,509 | $(7,111) | (8.2)% | | Total gross profit | $48,644 | $32,603 | $16,041 | 49.2% | | Total gross margin | 38.0% | 27.4% | | | - Subscription and transaction fees increased by 15.8% due to a 13% increase in total dollar volumes, a 17.6% increase in transaction fees, and a 12.1% increase in subscription fees, partly from the 32M acquisition[74] - Equipment sales decreased due to lower shipments after the completion of the 3G to 4G network upgrade[75] - Subscription and transaction costs increased due to higher processing volumes and a $2.7 million contribution from the 32M acquisition[77] Operating Expenses - Six Months Ended December 31, 2023 vs 2022 (in thousands) | Operating Expense Category | 2023 | 2022 | Change Amount | Percentage Change | | :-------------------------------------- | :--- | :--- | :------------ | :---------------- | | Sales and marketing | $8,509 | $5,735 | $2,774 | 48.4% | | Technology and product development | $7,198 | $12,164 | $(4,966) | (40.8)% | | General and administrative expenses | $20,943 | $18,137 | $2,806 | 15.5% | | Integration and acquisition expenses | $171 | $2,787 | $(2,616) | (93.9)% | | Depreciation and amortization | $5,483 | $2,666 | $2,817 | 105.7% | | Total operating expenses | $42,304 | $42,036 | $268 | 0.6% | - Sales and marketing expenses increased due to higher headcount. Technology and product development decreased due to lower expensed personnel costs and higher capitalized internal-use software[84][85] - General and administrative expenses increased due to personnel compensation. Integration and acquisition expenses decreased significantly post-32M acquisition[80][86] - Depreciation and amortization increased due to the 32M acquisition and growing internal-use software[87] Other Income (Expense), Net - Six Months Ended December 31, 2023 vs 2022 (in thousands) | Metric | 2023 | 2022 | Change Amount | Percentage Change | | :-------------------------------------- | :--- | :--- | :------------ | :---------------- | | Interest income | $1,010 | $1,445 | $(435) | (30.1)% | | Interest expense | $(2,109) | $(995) | $(1,114) | 112.0% | | Total other income (expense) | $(1,047) | $353 | $(1,400) | (396.6)% | - Other income (expense), net, decreased by $1.4 million, primarily due to a $1.1 million increase in interest expense from higher outstanding debt, partially offset by a $0.4 million decrease in interest income[90] Non-GAAP Financial Measures The Company uses non-GAAP measures like Adjusted EBITDA to provide greater transparency into core operating performance Adjusted EBITDA (Non-GAAP) - Adjusted EBITDA is defined as U.S. GAAP net income (loss) before interest income/expense, income tax, depreciation, amortization, stock-based compensation, investigation/restatement expenses, integration/acquisition expenses, and non-recurring severance[95] Adjusted EBITDA (Non-GAAP) Reconciliation (in thousands) | Metric | Three months ended Dec 31, 2023 | Three months ended Dec 31, 2022 | Six months ended Dec 31, 2023 | Six months ended Dec 31, 2022 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | U.S. GAAP net income (loss) | $3,124 | $(573) | $5,131 | $(9,147) | | EBITDA | $6,830 | $771 | $12,597 | $(6,310) | | Adjustments to EBITDA | $1,657 | $3,097 | $3,711 | $4,811 | | Adjusted EBITDA (non-GAAP) | $8,487 | $3,868 | $16,308 | $(1,499) | - Adjusted EBITDA increased significantly to $8.487 million for the three months and $16.308 million for the six months ended December 31, 2023, from $3.868 million and $(1.499) million in the prior year periods, respectively[96] LIQUIDITY AND CAPITAL RESOURCES Liquidity is supported by $43.5 million in cash and expected cash from operations, deemed sufficient for the next twelve months Sources and Uses of Cash - Primary capital sources are cash and cash equivalents ($43.5 million as of December 31, 2023) and expected cash from operating activities[98] - The Company believes current financial resources are sufficient to fund its twelve-month operating budget[100] - Focus areas to increase cash flow include prioritizing accounts receivable collection, utilizing existing inventory, improving operational efficiencies, and growing business domestically and internationally[100] - The Company has recorded $14.8 million in potential sales tax and related interest/penalty liabilities as of December 31, 2023[99] Cash Flows - Net cash used in operating activities decreased significantly to $1.2 million for the six months ended December 31, 2023, from $16.1 million in the prior year, driven by improved net income and reduced working capital utilization[103][104] - Net cash used in investing activities decreased to $5.9 million for the six months ended December 31, 2023, from $45.3 million in the prior year, primarily due to the absence of the 32M acquisition[106][107] - Net cash used in financing activities was $0.3 million for the six months ended December 31, 2023, compared to $21.5 million provided in the prior year, reflecting debt repayments versus prior year's borrowing for the 32M acquisition[108] CRITICAL ACCOUNTING ESTIMATES There have been no material changes to the Company's critical accounting estimates from the prior fiscal year end - No material changes to critical accounting estimates were reported from the Annual Report on Form 10-K for the fiscal year ended June 30, 2023[114] CONTRACTUAL OBLIGATIONS There were no significant changes to the Company's contractual obligations during the period - No significant changes to contractual obligations were reported from the Annual Report on Form 10-K for the fiscal year ended June 30, 2023[113] Item 3. Quantitative and Qualitative Disclosures about Market Risk The Company is exposed to market risk from interest rate changes on its $38.2 million outstanding debt - As of December 31, 2023, the Company has $38.2 million in total outstanding borrowings, and a 100 basis point increase in SOFR Rate would result in a $0.4 million change in annual interest expense[115] - Market risks related to changes in interest rates on cash investments (money market funds) and fluctuations of foreign currencies are not material[116] Item 4. Controls and Procedures Management concluded disclosure controls were not effective due to material weaknesses in internal control over financial reporting (a) Disclosure Controls and Procedures - Management concluded that the Company's disclosure controls and procedures were not effective as of December 31, 2023, due to material weaknesses in internal control over financial reporting[118] (b) Changes in Internal Control over Financial Reporting - No material changes in internal control over financial reporting occurred during the fiscal quarter ended December 31, 2023, other than ongoing remediation activities for previously identified material weaknesses[119] - The Company hired a public accounting firm and began implementing control enhancements in Q2 FY2024, with remediation efforts ongoing until controls are fully implemented and tested[120][122] Part II - Other Information Item 1. Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 15 in Part I, Item 1 - Legal proceedings information is incorporated by reference to Note 15 – Commitments and Contingencies[124] Item 1A. Risk Factors A discussion of risk factors is incorporated by reference from the Company's Annual Report on Form 10-K - Risk factors are discussed in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2023[125] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds to report[126] Item 3. Defaults Upon Senior Securities There were no defaults on any senior securities during the period - No defaults on any senior securities were reported[126] - Total liquidation preference for Series A Convertible Preferred Stock was $22.4 million as of December 31, 2023, with an annual cumulative dividend of $1.50 per share[126] Item 4. Mine Safety Disclosures There are no mine safety disclosures to report for the period - No mine safety disclosures to report[127] Item 5. Other Information No directors or executive officers adopted, modified, or terminated any Rule 10b5-1 trading plans - No directors or executive officers adopted, modified, or terminated any Rule 10b5-1 trading plans during the fiscal quarter ended December 31, 2023[127] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and iXBRL data - Exhibits include Amended and Restated Articles of Incorporation, Second Amended and Restated Bylaws, Certifications of CEO and CFO (Rule 13a-14(a) and 18 USC Section 1350), and financial information formatted in iXBRL[129][130][131] Signatures The report is duly signed by the Chief Financial Officer and Chief Executive Officer - The report was signed on February 8, 2024, by Scott Stewart (Chief Financial Officer) and Ravi Venkatesan (Chief Executive Officer)[133][134][135]