Good day and thank you for standing by. And welcome to the Cantaloupe First Quarter 2023 Earnings Conference Call. Please be advised that today’s conference is being recorded. With us on the call this afternoon is Ravi Venkatesan, Chief Executive Officer; and Scott Stewart, Chief Financial Officer. Before we begin today’s call, I would like to remind you that all statements included in this call, other than the statements of historical facts are forward-looking in nature. Actual results could differ materially from those contemplated by the forward-looking statements because of certain factors, including, 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 in our filings with the SEC and in the press release issued earlier today. Listeners are cautioned to not place undue reliance on any such forward-looking statements, which reflect management’s views 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 operating results. These non-GAAP financial measures are supplemental to, and not 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 been posted on the Investor Relations section of our website at www.cantaloupe.com. And with that, I would like to turn the call over to Ravi.

Thank you, Operator. Good afternoon and thank you for joining us today. We are pleased with the start of our fiscal year and are reporting a first quarter record in revenue of $57.8 million, up 26% over last year’s first quarter. Transaction revenue grew by 18% year-over-year and subscription revenue growth came at 11% year-over-year, in line with our expectations. Subscription revenue benefited from a strong uptake of our bundled platform-as-a-service offering, Cantaloupe ONE, as well as continued demand for additional software modules like Remote Price Change. As you may have seen in the outlook section of our earnings release, we expect subscription revenue growth to continue to ramp up throughout the year, resulting in growth in the low-teens for the full year and exiting fiscal year 2023 in the high-teens. Equipment revenue growth was strong, up 108% year-over-year, as we near the end of the 4G EMV upgrade cycle, we continue to work closely with our customers to complete the necessary upgrades before the industry-wide December 31 deadline. Active customers totaled over 25,000 at the end of the first quarter, up 21% increase year-over-year and 4% sequentially, driven primarily by the success of our small and medium business strategy. Active devices grew 3% year-over-year and 1% sequentially, as we navigate the final months of the hardware upgrade cycle. We expect an acceleration in the number of active devices as we move into the next calendar year when capital budgets are reelected to expansion and innovation. Our adjusted EBITDA for the quarter was negative $5.4 million, compared to positive $1.9 million in the same quarter of prior year. Gross margin and adjusted EBITDA were negatively impacted primarily due to onetime migration costs related to our transition to the AWS cloud environment and procurement of higher priced components to fulfill customer…

Thanks, Ravi. Q1 2023 revenue was $57.8 million, an increase of 26% year-over-year. Our combined transaction subscription revenue grew 16% to $47.1 million, which was driven by volume [ph], higher average transaction ticket sizes, as well as additional subscription revenue from Cantaloupe ONE and newer software modules like RPC. Our equipment revenue was $10.7 million, an increase of 108% compared to Q1 2022. Total gross margin for the quarter was 24.5%, down from 32.5% last year, predominantly driven by negative 23.8% gross margins on equipment revenue, compared to 5.3% in prior year. Our team continues to work hard to navigate supply chain constraints and we are maintaining higher than normal inventory levels to ensure we fulfill customer demand, which has been an issue for some of our competitors. However, in Q1, we saw higher than anticipated demand for certain ePort products that are being impacted by an industry-wide chip shortage. Given the very attractive lifetime value of an active device, we decided to purchase the necessary componentry at higher prices on the spot market to satisfy demand, resulting in a negative impact of approximately $2 million to our equipment gross profit. As of September 30, we have de-risked the vast majority of our device portfolio and we will continue to work closely with customers through Q2. The industry-mandated deadline for 4G EMV compliance is December 31st. We would expect equipment margins to normalize thereafter. Subscription and transaction gross margin was 35.5%, relatively flat year-over-year. Sequentially, this was down due to a one-time expense in Q1 and related to our AWS migration. For the remainder of the fiscal year, we expect gross margin on transaction revenue to be in the mid-teens and combined subscription and transaction gross margins to be approximately 38% to 40%. Total operating expenses in the first quarter…

Thank you. [Operator Instructions] Our first question comes from Chris Kennedy with William Blair. Chris, your line is open.

Good afternoon and thank you for taking the question and we appreciate the additional details on guidance. Can you talk a little bit about the acceleration of subscription revenue and you mentioned exiting the year at a high-teens clip. Is that kind of what we should expect going forward?

Thanks for the question, Chris. We are very excited about really stepping on the gas on the subscription revenue, which we have heard repeatedly is the single most important metric for our investors, especially given the much more attractive margin profile of that revenue. So there has been a focus on it. This is primarily driven by our strategy of platform-as-a-service with the Cantaloupe ONE offering and also additional add-on products like RPC and artificial intelligence, power, merchandising, et cetera. In terms of expectations, yes, what we see is that the subscription revenue will accelerate throughout the year. And as we mentioned earlier, we have started at 11% with the first quarter, we expect to have the full year revenue be in the low-teens, but actually exit in the high-teens, consequently entering the next fiscal year at that level and continuing to accelerate from there.

Great. Appreciate that color. And then just a small modeling one, what was the costs associated with the migration to AWS?

Yeah. So, Chris, the overall cost was $1.4 million and you will see that in two different areas. You will see a little bit less than $1 million in the cost of goods sold and then you will see about $400,000 to $500,000 in the operating expenses.

Great. Thanks a lot guys.

Please standby for our next question.

Thanks, Chris.

Our next question comes from Gary Prestopino from Barrington Research. Gary, your line is open.

Hi. Good afternoon, everyone. A couple of questions here, first of all, could you talk about anything you saw on the Yoke Payments space. Are you getting any traction there at all?

Thanks for the question, Gary. Yes. So we have some exciting traction on the Yoke Payments space. Not traction, which is reflected in the first quarter financial results, but that will beneficially impact our -- the trajectory of our subscription revenue in the coming months. And part of our positive guidance on the revenue front, particularly the subscription revenue is based on the traction that we are seeing, not just for our software products, but also for our micro market offerings. And as a reminder, the Seed market addition, not just the Yoke kiosk, combined together address the micro market opportunity and Seed markets is already the market leader for the software that powers micro markets, whether they are Yoke kiosk or kiosks from another competitor.

Okay. And then in your guidance that you are contemplating, once we get past this upgrade, you said that the margins for equipment will normalize as far as you can see. So we shouldn’t expect any kind of negative disintermediation like we had here in the quarter where we get a pretty bad surprise on the downside. Is that a correct assumption?

Yeah. That is a correct assumption, Gary. So, overall, when you look at where we landed for the first quarter and then looking into second quarter, we expect some of those costs to trickle into the second quarter. We have mitigated that some by renegotiating some of our prices with our suppliers. We are getting them to absorb some of the costs as well. There will be a little spillover from that in the second quarter, and we are expecting a pretty significant second quarter for equipment revenue as we round out the 4G upgrade process. But then after that, as we roll in the third quarter and fourth quarter, we will be selling it at a profit.

Okay. And then just last…

And Gary, we will…

I am sorry. Go ahead, Ravi. Sorry.

No. I was just going to add a little bit more color on the margin profile on the equipment, and as you described it, the fairly significant downside surprise. Look, the way this has worked is, the supply chain situation has been challenging with chip shortages and it depends on the specific products and the specific mix, et cetera. But we had a strategic decision to make, especially with our customers spending a lot of their capital in upgrades to either push and try to pass on all those costs to our customers or work with them with a longer view and help them through these upgrades, keeping our eye on kind of the lifetime value for those connections, which is very attractive and we decided to do the latter, which we believe is in the best long-term interest of our business, as well as the relationships we have with our customers.

Okay. And then just lastly and I will jump off. Would you say that your business is generating revenues on a same-store basis basically at or above pre-pandemic levels? I guess I am just trying to get an idea of what the economy looks like now in terms of offices opening, things like that.

It is. Yeah. The simple answer is it is. I will let Scott add some more color there.

Yeah. So especially as it relates to the transaction processing, we are operating well above what the pre-pandemic levels were. The exciting part for us is we feel like there’s still more to come as it relates to the businesses coming back. So we think another 10% or 15% increase if we ever get back to full offices being occupied.

Great. Thank you.

Thank you. Please standby. Our next question comes from George Sutton from Craig-Hallum. George, your line is open.

Thank you. Looking at your move to AWS, you talked about scale that that will give you the ability to have. Can you talk about any governors to your growth you had prior to this, just so we are clear where those were and what’s enhanced by the AWS move?

Yeah. Josh, thank you for that question. So the two things that the AWS move makes easier is, when we take our cloud platform and the software that runs there, it’s much easier now to replicate it into geographies that require that software to run within their macro region. Europe, for example, where for compliance reasons, you have to replicate the software and run it within data centers that are in Europe, the AWS platform makes it much easier to replicate it that way. Similar for other regions like Latin America, et cetera. So that’s a big one, which we felt was a governor earlier in our prior cloud infrastructure.

So just to be clear, it’s primarily an international benefit, and obviously, we wanted you, encourage you to grow quicker internationally. This will enhance that effort. Is that -- that’s the main benefit, just to be clear?

That’s the main benefit. The second benefit is it’s a more scalable environment. Amazon has built essentially the best cloud infrastructure on the planet and that lets us scale in a very seamless manner, as transactions grow, as connections grow and as we put more volumes on the platform.

Understand. So when we do third-party work, we continually hear how attractive Remote Price Change is, it’s something competitors don’t have and I am curious how aggressively you are using that for both new customer opportunities and for retention of existing customers?

It’s a great question and it’s music to my ears that your third-party research validates what we are seeing in the marketplace. We are being aggressive in using it on both, as you said, retention, as well as in new customer acquisition. In fact, there have been several new customers for whom the main driver, not just to migrate to our Seed software, but also to our ePort devices has been the ability to do Remote Price Change. Where we are not being too aggressive is we are trying to hold and we are going to hold the price pretty steady there and not -- because we see a tremendous amount of value in it, this is a value-based sale for us versus a price-based sale for us, if that makes sense.

Understand. Last question, if I could, just trying to put a couple of things together. You suggested you had competitors that have had some supply constraints. You were very aggressive in going after some opportunities relative to bringing hardware as part of a broader relationship and then you also announced a fairly significant growth in customers. I am just trying to put all this together and understand the significance of the hardware component of this versus the Cantaloupe ONE effort relative to this customer growth?

Yeah. So two things, the Cantaloupe -- whether it’s the Cantaloupe ONE effort or the combination of our navigation of supply chain, in a sense, what it’s let us do is navigate this upgrade cycle with very minimum churn, right, and continue to grow our active devices, which was a very important key metric for us, because all the services we layer are layered on top of that footprint. Although our Seed software does work with competitive devices also, so we can continue to grow that on an independent vector. Does that answer your question?

So I think what you are saying is the -- you have been able to keep customers, so retention by being aggressive on the hardware side, Cantaloupe ONE is different in the sense that it’s bringing in new customers via that channel, is that what I am hearing?

Correct. Correct. And it’s also worth amplifying that, Cantaloupe ONE has had wonderful receptivity with the small and medium business segment where we were traditionally less penetrated. Traditionally, we were always very well penetrated on the large enterprise segment and we looked at it and have specifically focused on the SMB segment a lot more, particularly in the last 12 months to 15 months. Part of that was the Cantaloupe ONE strategy and it’s starting to pay off significantly, which is reflected in our customers being up 21%.

Perfect. Okay. Thanks, guys.

Thank you. I would now like to turn it back to Ravi for closing remarks.

Thank you, Operator. First of all, I wanted to thank you all for joining this call and your engagement. I also wanted to extend an invitation to you to join us at our Investor Day on December 12th at the NASDAQ to meet our broader leadership team and also learn about the longer term outlook and growth strategy of the company. With that, we can close out. Thank you.

Thank you for your participation in today’s conference. This does conclude the program and you may now disconnect.