Ladies and gentlemen, thank you for standing by, and welcome to the Cantaloupe Incorporated First Quarter Fiscal Year 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. I would now like to hand your conference over to your first speaker today, Alicia Nieva-Woodgate, Vice President of Corporate Communications and Investor Relations for Cantaloupe Incorporated. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to the Cantaloupe first quarter earnings conference call. With me on the call this afternoon is Sean Feeney, Chief Executive Officer; Wayne Jackson, Chief Financial Officer; and Ravi Venkatesan, Chief Technology Officer. Before we begin today’s call, I would like to remind you that all statements included in this call, other than statements of historical fact are forward-looking in nature. Actual results could differ materially from those contemplated by the forward-looking statements because of certain factors included, but not limited to, business, financial, market and economic conditions. A detailed discussion of the risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included with our filings with the SEC and in the press release issued earlier today. Listeners are cautioned not to place undue reliance on any such forward-looking statements, which reflect management’s view only as of the date they are made. Cantaloupe undertakes no obligation to update any forward-looking statements whether because of new information, future events or otherwise. This call will also include a discussion of certain non-GAAP financial measures that we believe are useful for, among other things, evaluating Cantaloupe’s operating results. These non-GAAP financial measures are supplemental to and not a substitute for GAAP financial measures, such as net income or loss. Details of these non-GAAP financial measures, a presentation of the most directly comparable GAAP financial measures and a reconciliation between these non-GAAP financial measures as well as the most comparable GAAP financial measures can be found in our press release issued this afternoon, which has also been posted on the Investor Relations section of our website at www.cantaloupe.com. And with that, I would now like to turn the call over to Chief Executive Officer, Sean Feeney. Sean?

Thank you, Alicia, and thank you, everyone, for joining us on our first call of the new fiscal year. Before I dive into the business update, I want to point out that starting this quarter, we are providing additional visibility into our financials by breaking out revenue streams and operating expenses differently, which you can see in our earnings press release and which Wayne will describe in more detail. This disclosure aligns more closely with the way we internally manage the business. We had a strong start to fiscal year 2022 with first quarter revenues increasing 24% year-over-year, driven by 34% increase in transaction revenues and 37% increase in equipment revenue over the prior year quarter. Relating to our transaction revenues, our volumes are now exceeding pre-pandemic highs. Comparing the current quarter to prior fiscal year quarter, total dollar volumes increased by 36%. Active customers increased by 17% and active devices were up 3%. We are seeing continued demand for Cantaloupe’s products and services. Over the last few weeks, I’ve been meeting with operators to hear more about trends they are seeing in the market and how we can help them. It is clear from these conversations that customers have an increased level of confidence in their business outlook. The return of travel, the return to schools and the need for the digitization of payments are all positively impacting our business. Operators continue to provide feedback that our Seed Pro software is helping them keep up with these trends as well as helping them to navigate supply chain issues and the tight labor market. Plain and simple, our software enables operators to be more efficient. A few weeks ago, we highlighted Seed Pro and Seed Office’s very positive impact on Food Express, a new client and one of America’s fastest-growing…

Thanks, Sean. Good afternoon, everyone. As Sean noted, we are disclosing a breakout of subscription and transaction revenue in our revenue footnote. In addition, we have revised the presentation of operating expenses in our income statement by disaggregating selling, general and administrative expenses. The new presentation is intended to provide additional transparency and reflects in more detail how we manage our business. From a financial perspective, we had a solid quarter. Q1 FY2022 revenue was $45.8 million, a 24% increase year-over-year, driven by record transaction and subscription fees of $26.4 million and $14.2 million, respectively. Transaction fees grew 34% year-over-year and 8% sequentially. Subscription fees increased 6% year-over-year and 2% sequentially. Equipment revenue for the first quarter was $5.2 million, a 37% year-over-year increase but down sequentially following a record high amount in Q4 FY2021. We are seeing increased momentum in the equipment pipeline with strong orders continuing into the second quarter. Active customers totaled almost 21,000 as of September 30, 2021, compared to approximately 18,000 as of September 30, 2020, an increase of 17% year-over-year and 5% sequentially over Q4 FY2021. Active devices totaled 1.1 million as of September 30, 2021, an increase of 3% year-over-year. Total gross margin for the quarter was 32.5%, down from 38.6% in the prior year fiscal first quarter, but up 2% sequentially. As a reminder, Q1 FY2021 benefited from a onetime out-of-period adjustment. Subscription and transaction revenue margin was 35.9%, reflecting a higher mix of transaction revenue versus the prior year quarter’s gross margin of 41.6%. Equipment revenue margin for Q1 FY2022 decreased 5.3% – decreased to 5.3% from 12.4% in the prior year. Last year’s equipment sales margins benefited from the out-of-period adjustment mentioned earlier. As I previously noted, we now break out operating expenses in greater detail in our financial statements.…

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

Hey, guys. Thanks for taking the question and I appreciate the new disclosure. On the subscription revenue up 6% in the quarter, how has that trended relative to history?

Wayne?

Thanks for the question. This is Wayne. So sequentially is a good indicator right now, going about 2% a year. And the reason I say that, if we look at fiscal 2020 in the last two quarters of that year, we had some credits related to COVID. So maybe start looking at what we’ve disclosed in FY2021 and first quarter of 2022 as sort of the trend line on a sequential growth, if that makes sense.

Sure. Okay. Yes, that does. And then just broadly, can you talk about the gross margin profile between subscription fees and transaction fees? Thanks a lot guys.

Sure. That one is subscription fees are very similar to traditional SaaS fees that you would expect and transaction fees are very much lower margin, but much bigger numbers.

Okay. Understood. Thank you.

Your next question comes from the line of Mike Latimore from Northland Capital. Your line is now open.

Great. Thank you. Yes, the additional clarity is great. In terms of the subscription line, can you just talk a little bit about the key drivers for that line over the next year? Is it new connections, see cross-sell, new products? How do you kind of prioritize the key drivers for subscription over the next year?

Sure. Thanks, Mike. The key drivers for subscription, and number one, I’m very happy to begin calling our subscription revenue, subscription versus license. Feel like we’ve come into the current century now. But we get subscription from two areas. One is we get a subscription fee for managing devices. And of course, we get it for the Seed software. And both of those will be important contributors as we look forward. And we begin to see more devices coming back online as we hope offices return to some normalcy in the second half of our year. We have a lot of Seed activity going on now as operators are more confident and beginning to look at expanding that. And also in the second half and into next year, you’ll begin to see some of the additional modules, which we will charge additional subscription fees for coming online and beginning to get those small impact in this fiscal year but should be stronger in the next year. And also, remember, we get a subscription fee from our new Yoke product. While the numbers are small now, we are beginning to accelerate with the release of Version 2 very soon, and you’ll begin to see that contribute as well. So yes, connections reactivations, Seed and Yoke will all drive the subscription line for the remainder of this year and really begin to contribute in FY 2023.

Okay. Got it. and transaction volumes are above pre-quota levels. I guess the office category, I think, is generally lagged. Maybe can you give a little update on patterns in the office you’re seeing?

Yes. I think that what most operators are telling me is I’ve spent a lot of time with them, as has Ravi, they’re getting more and more confident. What they’re unsure of is kind of when people return to the office, exactly what that looks like. In some cases, people will come back and may be in the office fully for 5 days a week. In some cases, operators are telling us that it’s two to three days. What the operators have learned is to ask what coming back to the office means to you and how they then will react to that. So we had planned for this year in our guidance a gradual return to the office, and I think we will begin to see that in January. We’re, of course, very interested to see kind of whether the Ocean announcements today begin to drive that and increase in velocity. I think everyone has a different view on kind of what’s being back in the office looks for businesses going forward. Most operators that I talk to say that it will probably take at least through calendar 2022, if not well into calendar 2023 before we see kind of fully back in the offices, but that’s what we plan for in our guidance.

Okay, thanks.

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

Good afternoon. Sean, you were talking about volumes picking up on the last question, is that transaction volumes? You said they were up 30% sequentially or 30% year-over-year? Or is it dollar volumes?

Year-over-year and dollar volumes, I believe, we’re up that number. Wayne, you’ve got the number right there.

I’ve got it here, Gary. So dollar volumes are up 36%. Number of unit volume is up 28%.

28%. Okay. That’s great. And then you mentioned that with Yoke and Seed, you have a unique solution for the micro markets. Could you maybe just elaborate a little bit on that? What you can do in the market versus some of the competitors out there?

Well, I think when you look at it from the point-of-sale device, Gary, we didn’t have an offering there. So bringing that strengthens our offering. And when you look at Seed markets, what we’ve been told and what we’ve seen is that we think that’s the leading product in the market. So the combination of the two brings together a strong point-of-sale offering, along with the best Seed markets product. And the strength of Seed is we service all part of the operator’s business and it’s an area that we’ll be investing in a lot to combine the Yoke platform with the Seed markets to build out differentiation going forward.

Does your competitor, Nayax, have the same capabilities with POS and software? Or are you the only one out there in the market with this?

Nayax does not have the software capability that we have. They do have the point of sale and they are just getting started in micro markets as we are.

Thank you.

[Operator Instructions] Your next question comes from the line of George Sutton from Craig-Hallum. Your line is now open.

Thank you. Sean, I wondered if you could walk a little more through the EMV enablement in terms of the push and pull of hardware and other services that you’re trying to offer as that process is taking place.

Sure, George. Thanks. That’s a great question. So EMV, most of the devices that we’ve shipped over the recent years and months are all EMV-compliant. The non-compliant devices are mainly older devices that are out there, many of which may be 3G, so they kind of fall in line with the 3G upgrade, and others where the swipe and dip is EMV-compliant but the touchless part isn’t. And so the exposure is much less than what we saw with 3G to 4G, but some very large customers and really across the full customer base. And we’re working with them to get them fully EMV-compliant. And as I said in the text, we already have the most devices out there that are EMV-compliant. We’re just working with the ones that we need to either upgrade to a new device or an over-the-air upgrade or a bezel upgrade in some cases.

Got you. So something that we continually hear when we’re doing channel checks and has never been discussed on a call, or the remote price change capability that you’ve built in, it seems to be very well received. How are you charging for that? How is that driving additional business for you? We just thought it deserves some attention given what we’re hearing out there.

Yes. So I’m going to ask Ravi to ask that because he is the RPC expert, and he and I have been on the road a lot talking to operators about that. So Ravi, do you want to talk about RPC?

And George, you’re absolutely right. It’s a much demanded feature, especially with inflation and the need to sort of react to suppliers changing prices for our customers and then passing that on. The way we plan to charge for it is typically on a per device per month basis. So it’s a classic kind of add-on SaaS play where there’s an additional module that we will provide our customers and charge on a per device per month basis.

Perfect. Thanks for that. Appreciate it.

There are no further questions at this time. I will now turn the call back to Sean Feeney. Please go ahead.

Thanks, operator. As I said at the beginning, we’re off to a strong start for fiscal year 2022. I know tonight is a busy earnings night, and we appreciate your attention and look forward to talking to you guys either this evening or over the coming weeks with all many other investors. We’re excited about what we’re doing and looking forward to a great year. Thank you.

This concludes today’s conference call. Thank you, everyone, for participating. You may now disconnect.