CANTALOUPE, INC. Q2 FY2024 earnings call

• Total revenue increased 7% year-over-year to $65.4 million, driven by 17% transaction revenue growth and 10% subscription revenue growth.
• Total gross margin for the quarter was 37.2%, up from 30% in the same quarter last year, driven by higher margins across all revenue lines. Transaction margin reached about 20% this quarter, ahead of schedule for the goal of 20%+ by fiscal year '25.
• Acquired CHEQ, which positions Cantaloupe for expansion into sports entertainment and restaurant sectors with self-service solutions.
• Highlighted select customer wins, including Canteen of Northern California, Paramount Vending, and others, with customers converting to Cantaloupe's platforms.
• Released new subscription products like Seed Analytics and Seed Intelligence, and Seed platform now available in Mexico with Spanish support.
• International pipeline continues to build, with pilots in Latin America and deployments in Europe, bringing on new customers in the region.

In the second quarter of fiscal year '24, total revenue was $65.4 million, up 7% year-over-year. Transaction revenue, the largest revenue stream, grew 17% year-over-year, and subscription revenue grew 10% year-over-year. Equipment revenue was $9.3 million, a 25% decrease compared to Q2 FY '23. Total gross margin for the quarter was 37.2%, up from 30% in the same quarter last year. Transaction revenue realized gross margins about 20% this quarter. Subscription revenue is expected to be in the 12% to 15% range for fiscal year '24. Active device growth was 7% year-over-year.

• Total revenue expected between $275 million and $285 million.
• Transaction and subscription revenue expected between $234 million and $242 million, at the lower end due to slower international revenue ramp and delayed domestic activations.
• Equipment revenue expected to ramp in the second half of the year due to international expansion.
• Adjusted EBITDA expected at the high end of the $28 million to $34 million range.
• Total U.S. GAAP net income expected between $9 million and $15 million.
• Total operating cash flow expected between $28 million and $38 million.

Q: It's been over a year since Investor Day and at Investor Day you talked about 20% plus subscription growth for the business over the next 3 years. Can you give updated thoughts on achieving that goal?

A: Yes, we are on the right trajectory but face delayed activation timelines. There's a significant backlog of sold and shipped devices, but installation and activation timelines are the challenge. As that normalizes, subscription revenue growth is expected to ramp, and we still believe a long-term sustainable target for subscription revenue growth is 20%.

Q: On international, it's taken longer than expected. Can you talk about the puts and takes with the international business?

A: On international business, we've gone through launch events, pilots, proving out solutions, and now starting to scale. While it's taken longer than desired, there's great reception in Europe and Latin America, giving confidence in the ramp in the back half of the fiscal year.

Q: Follow-up on European piece, time frame for pilots? And on the trade-up program for CHEQ?

A: Typically, pilots run 3 to 4 months. The trade-up program is an incentive for operators to trade up to the latest solutions, helping customers be all in with Seed.

Q: On CHEQ, color on revenue profile or margins, and cash flow cadence in back half?

A: CHEQ's revenue is predominantly transaction based (95%), margin profile is early but synergies with transaction processing will improve it. Operating cash flow is expected to be evenly weighted over third and fourth quarters, with temporary decrease in Q2 due to credit card processing mechanics.