Hello, and thank you for standing by. Welcome to Cantaloupe Fourth Quarter Fiscal Year 2024 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. [Operator Instructions] I would now like to turn the conference over to [Megna Mira] (ph). You may begin.

Thank you, operator. Good afternoon, everyone. Welcome to the Cantaloupe Fourth Quarter Earnings Conference Call. With me on the call today is Ravi Venkatesan, Chief Executive Officer; and Scott Stewart, Chief Financial Officer. Before we begin today's call, we would like to remind you that all statements included in this call, other than 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 markets, and economic conditions. A detailed discussion of the risks and uncertainties that could cause the actual results to differ materially from such forward-looking statements is included in our findings 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's 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 those 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, Megna. Good afternoon, everyone, and thank you for joining us today for our fourth quarter and Fiscal Year 2024 Call. I'll start with a high-level view of our Q4 performance and cover financial and operational accomplishments from FY 2024. I'll also touch on FY 2025 strategic priorities before turning it over to Scott, for a deeper dive into the numbers and our FY 2025 guidance. Q4 financial highlights. It's been a strong year for Cantaloupe, capped off by a solid fourth quarter. Our total revenue increased 13% compared to FY 2023 Q4 to $72.7 million, driven by a 16% increase in transaction revenue and a 14% increase in subscription revenue compared to FY 2023 Q4. Adjusted EBITDA for Q4 was $7.5 million, a 19% decrease compared to Q4 FY 2023. Note that Q4 FY 2023 included a $1.5 million benefit, through one-time items, which Scott will elaborate in his section. FY 2024 financial accomplishments. From a financial perspective, FY 2024 revenue came in slightly below our guidance at $268.6 million. Adjusted EBITDA came in strong at $34 million, an increase of 91% from the prior year. During FY 2024, we succeeded in our strategy to expand operating leverage by driving recurring revenue growth while also optimizing cost of sales and controlling operational expenses. We have continued to make progress on expanding our gross margins, total non-GAAP adjusted gross margin for FY 2024 was 38% compared to 33% in FY 2023. More significantly, we've extended our revenue per connection by 11% from $174 in FY 2023 to $194 in FY 2024, which reflects the impact of new products and features we've rolled out that allow our customers to sell higher ticket items through our points of sale. We are proud of the progress and accomplishments in 2024 and excited…

Thank you. [Operator Instructions] Please stand by while we compile the Q&A roster. Our first question comes from the line of Chris Kennedy with William Blair. Your line is open.

Yeah, good afternoon. Thanks for taking the question. Can you give a little bit more color on the sub and transaction revenue guidance of 15% to 20% relative to your prior initial, I think preliminary outlook of at least 18%.

Sure, Chris, thanks for the question. So our guidance is 15% to 20%. Initially, when we revised our guidance back in third quarter of last year, where we said 18% plus. We're right in the mid-range of what we said in the previous quarter.

Okay. Any, I mean, can you -- and then can you give us any additional color on the mix, the subscription growth versus transaction growth as we look into next year? Thank you.

Yes. So, as we mentioned also in our previous quarter call, we're expecting subscription revenue to be in the 15% range. And then on the 15 plus, and then on the transaction, we're expecting that to be in the 18 plus range.

Okay, great. And then just one last one on SB, the acquisition of SB Software. Can you talk about kind of the strategy there and the opportunity to add payments and kind of the timeline on that? Thank you.

Yes, I think you kind of hit the nail on the head, Chris. It's primarily a software business and it's got a nice expanded reach and reputation in the European market and the UK and Ireland market. So it allows us to now cross sell our cashless payment acceptance devices and other software addons. So it's a nice kind of set of synergies, as well as our micro market solutions. So we've kind of acquired some additional product modules like the coffee manager that was mentioned in the release, which is unique and differentiated in Europe, as well as opened up opportunities to go to several new customers and cross sell.

Great. Thank you. Thanks for taking the questions.

Thank you. Please stand by for our next question. Our next question comes from the line of Josh Nichols with B. Riley. Your line is open.

Yes, thanks for taking my question. I know the 4Q revenue came in a little bit light, but still a very significant step up, when you look at what you guys have achieved last quarter. I'm kind of curious, like expectations since we're largely through the September quarter now, in terms of cadence and the traction you're seeing. Do you expect the type of trajectory that you saw this quarter kind of continue into the September quarter? Or how do you see things playing out as we think about the year and how that's starting off so far for the first two and a half months?

Yes, I think, Josh, it's worth adding a little bit of color to fourth quarter. We did see transaction revenue come in lighter in the month of June. And frankly, we were concerned about it. But as we've monitored those trends carefully, it looks like it really might have been weaker consumers spending in that one month, but not a trend because July and August, have since been more to the typical longer term trends that we've seen and strengthened since then. So, translation, we have not seen any of that weakness continue into fiscal year 2025. And we've talked to a number of people, including analyzing some small business reports from our acquiring partners and other payment acceptance players in the industry. And it does look like there was some weakness in consumer spending in June, but that has not persisted as a trend.

Thanks. And then just curious, like in terms of the SB Software acquisition, makes a lot of sense in terms of the European exposure as you leg into that. Is that more of a technology acquisition? They have like 30,000 customers. But I'm just kind of curious, is that like a material revenue contributor to this coming fiscal year or not?

It's more a technology acquisition and something that opens up a ton of cross sell opportunities, from a financial impact perspective, it is not material, it's less than a percent of our revenues and EBITDA. Scott.

Yes, that's exactly right. We're anticipated to be a little less than 1% of our overall total revenue for this year. But to Ravi's point, I think there's lots of synergies with our operations over in Europe that we can recognize over the next year and beyond.

Perfect. And then last question for me, it looks like you are affirming that you do expect a nice acceleration in growth specifically for subscription and transaction fee revenue for this year, up around 200 bps at the midpoint relative to the 15.5 or so percent growth you did last year. I'm just curious, can you help provide a little bit more detail in the breakdown of what's driving that? Is it some of the existing customers, more the international expansion, micro markets? If you kind of opine on that for a minute or so, that'd be helpful.

Sure. I think you just said a lot of big topics there, Josh. Overall, we are anticipating growth in international. We've been working at that for the past several years. We're starting to gain traction in Europe and in Latin America. Cantaloupe One is very popular in Latin America, we talked about a deal that we closed. For the past quarter where we did almost 4000 Cantaloupe One devices. And we expect that to continue growth in Latin America and then micro markets are also doing -- performing very well. They're growing at a pace a little bit faster than the legacy Cantaloupe somewhere in the 25% to 30% growth range.

Yeah. The couple of things I would add are we signaled, I think, two quarters back that we do see subscription revenue starting to reaccelerate. And you've seen now evidence of that in the fourth quarter results, right? The reacceleration of subscription revenue. So that trend, as you project it out, you see where that gets us into kind of the 15% growth rate range. It's lower than our original aspiration of 20% growth rate, but it's still healthy and it's still reaccelerated and now we have a lot more data points and a lot more confidence, and I would say a lot more risk off the table around that. On the transaction revenue trends, it's been driven by both what we've seen in terms of ticket sizes increasing, but also in terms of the micro markets becoming a bigger and bigger portion of our business. So I'm personally very excited about the growth in micro markets and the growth in Smart Coolers. And now the latest product we've launched called Smart Stores, which takes aim at retail theft and has been very well received in providing an alternative to locking up things in a traditional retail store where it creates consumer friction versus here is a smart product where consumers can tap a card, open something and take the product they need and leave.

Perfect. I'll hop back in the queue. Thanks.

Thank you. Please stand by for our next question. Our next question comes from the line of Gary Prestopino with Barrington. Your line is open.

Hey, Scott, Ravi. A couple of questions here. First of all, with SB, is there anything in their software that you have to change for them to start going into, for you to take it into the European continental market? I mean, you basically are saying it's just Ireland and the UK. And I was just wondering if there's a issue there or is it just a manpower issue that couldn't go into the continent.

So they have a limited presence in continental Europe, but you're exactly right, it's a small company and they intentionally focused on mastering what they do within the UK and Ireland market while localizing and translating the software product to be ready for the continental European market. Now, as part of a bigger, broader company, which is Cantaloupe and with more strength in sales and marketing, and distribution channels, that opens up the avenue to take it across continental Europe as well.

Okay, that's good to hear. And then, Ravi, in terms of, throughout most of fiscal 2024, you were having issues with implementation because of manpower. Has that alleviated itself? And specifically, talking about your new wins in Europe.

Yes, well, nothing alleviates itself. But yes, we've done a number of things, deployed a number of strategies to actually bring that back into normal trends. And so in Q4, we did reach a point where the implementation cycle is now resumed where it was earlier.

Okay. And then just lastly, I don't have the numbers in front of me, but over the last couple of quarters, you showed some really good margin expansion on the gross margin for subscription and transaction, or license and transaction revenue. It doesn't appear that occurred in this quarter even with the -- you back out the non-recurring item. Was there some -- was that just a function of what you said that June you started to see some really -- some slowdown in consumer spending and that impacted the gross margin? I'm just trying to get an idea of what actually transpired in the quarter that would have impacted that margin.

Yes, Sure, Gary. So, overall, our margins for the fourth quarter are pretty much in line with where they've been for the past three quarters. And you've seen margin expansion over the past three quarters. And just to give you some numbers, how we compared to last year? So last year, our transaction margin was around 16%. This year for FY 2024 we increased to 21%. Subscription margin went from 87% in 2023 up to 89% in 2024. And then equipment revenue went from less than 2% in 2023 up to 7% in 2024. So our total overall adjusted gross margin from 2023 to 2024 went from 33% up to 38%. So we've had, throughout 2024, margin expansion. And fourth quarter is right in line with where we had been for the past three quarters.

Okay, thank you very much.

Thank you. [Operator Instructions] Please stand by for our next question. Our next question comes from Mike Latimore with Northland Capital Markets. Your line is open.

All right, great. Thank you. Hey, so sticking with the gross margin topic. So should we assume that gross margin is relatively stable going forward? Is there more room for expansion?

Yes. So I would say on the transaction side, we've been working hard to increase our take rates and to lower our cost. I think there's still a little bit of room for expansion there. I think as it relates to the subscription fee margin, we've been in that 88% to 90% range. I would anticipate us staying within that range. On the equipment side, our aspirational goal has been to be between 10% and 15% and that's what we're going to be pushing really hard for in 2025.

Got it. Thanks. And then, Ravi, when you said the implementation timeframes back to what it was, can you just quantify where it is now relative to the past patterns here?

Yes, the long-term trend has been that for most of what we do, we are able to implement it between sold and installed, and activated in a six-week timeframe. And we've sort of seen it come back to those now. When it was elevated in between, it was sometimes as high as four months. And while the exceptions still take longer, now the broad majority has started coming back in line. We have deployed a lot more of our own installers and services that we charge our customers for, as well as made some technological improvements to how devices are activated, how micro markets are activated to make it more kind of drop and click and -- or plug and play, as my operations head likes to call it. So those initiatives have paid off in accelerating that.

Great. And then just last on Latin America, can you talk about some of the growth opportunities there? I think you've won one of the big pending operators, I believe, and then, is that the key thing this year is just to roll that out, or do you have prospects of winning another one or two big ones there?

I definitely think we have prospects of winning at least one more of the big ones and potentially two.

Okay, very good. Thank you.

Thank you. Please stand by for our next question. Our next question comes from the line of George Sutton with Craig Hallum. Your line is open.

Thank you, Ravi. I wonder if we could step back and talk about the international markets as they stand today. Obviously, you entered both markets over the past several quarters. Curious if you can give us an update on, are you where you want to be, do you still think the opportunities are as significant as you thought when you started? And I don't want to conflate things, but you talked about leveraging partnerships as a new goal. I'm curious if that fits into a large part of that strategy.

Yes, I'm actually more bullish about the opportunity in both Europe and Latin America than I was, let's say, a couple of quarters ago. And that's based on the following data points. One, we have now seen those markets also open up to micro-markets, but more importantly, the concept of smart stores, right? So think of a smart store as something that solves for fraud. Sometimes the micro market can be a challenge. So you have to put micro markets in high-trust locations. The smart stores can go anywhere, just like vending machines. However, they are more elegant and they are more contemporary and more modern. So I've seen the European market in particular be very receptive to that product, as well as the Latin American market. So that actually opens up, we are able to get into a newer space versus replace competitor technology, which is fine, we'll continue to pick up market share in vending machines and in other areas as well. I have also seen a lot of new take in what Europe calls forecourts, which we call gas stations in the US, and the convenience stores. That opportunity has also been tremendous and we started getting traction in those. So multiple areas that give me more optimism and more confidence in our ability to execute in Europe as well as Latin America. And also some deeper research that we've done both through primary sources and secondary sources on where the opportunity is, who's making what kinds of decisions and what's the future of self-service in those marketplaces. So all that translation, we're just way better informed having had boots in the ground and having had initial successes and connected with all these customers.

Great. Thank you. And, Scott, one question for you on the revenue per connection. So nice growth up to $194. As you're thinking through 2025 and beyond, can you just talk about where you see that statistic going?

Yes, sure. We continue to see that increasing. We believe that the average transaction price is going to continue to increase through 2025. There's also new add on modules that we'll be launching in 2025. Ravi talked about ad management a little bit in his prepared remarks. And so we see that continuing to increase throughout 2025.

Okay, thanks, guys.

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to management for closing remarks.

Thank you, operator. I think FY 2024 for us has been a year of taking a number of risks that the business faced off the table, including related to weaknesses, material weaknesses around our controls, including the tail end of upgrade cycles with the 3G to 4G, non-EMV to EMV, et cetera. And several challenges around infrastructure and scale, et cetera. I'm very proud to share that on the operational front, all those challenges, including the implementation timelines, which in many ways were tailwinds, have been addressed, resolved. And so I'm really excited and confident in the FY 2025 forecast as we head into this new phase of growth and profitable growth for the company. I'm also delighted that we've done a lot of diligent work as part of this turnaround to build a balance sheet that gives us the fortress that we need to now be able to expand to new product lines, new verticals, do new acquisitions and do it in a manner which is low risk and high reward. So with that, I'll conclude the call here. And thank you for your attention, your engagement, and your interest.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.