Cantaloupe, Inc. is a global technology leader in the self-service commerce space. The company provides end-to-end solutions that enable businesses of all sizes to offer seamless self-service experiences to consumers. Cantaloupe's vertically integrated platform encompasses micro-payments processing, enterprise cloud software, IoT technology, and innovative kiosk and POS solutions.
Business Overview
Cantaloupe's solutions are utilized by a diverse range of consumer service providers across North America, Europe, Latin America, and Australia. The company's customer base includes vending machine operators, micro market and smart retail providers, laundromats, metered parking terminals, amusement and entertainment venues, and IoT service providers, among others. Cantaloupe's platform is designed to increase consumer engagement and sales revenue through digital payments, loyalty programs, and targeted promotions, while also empowering business owners to drive operational efficiencies across their entire operations.
The company's fiscal year ends on June 30th, and it generates revenue through subscription and transaction fees as well as equipment sales. During the three months ended March 31, 2024, Cantaloupe derived approximately 87% of its revenue from subscription and transaction fees, and 13% from equipment sales. For the nine months ended March 31, 2024, the company's revenue mix was 87% subscription and transaction fees and 13% equipment sales.
Financials
Quarterly Financial Performance
In the third quarter of fiscal year 2024, Cantaloupe reported total revenue of $67.9 million, representing a 12.5% increase compared to the same period in the prior year. This growth was primarily driven by a 15.5% increase in subscription and transaction fees, which reached $59.2 million. Equipment sales declined by 4.6% to $8.7 million, as the company lapped the strong demand from the 3G to 4G network upgrade cycle in the prior year.
Gross margin for the quarter improved to 39.6%, up from 37.9% in the same period last year. This expansion was driven by higher margins in both the subscription and transaction revenue streams, which reached 44.4% compared to 42.3% in the prior year. The company's equipment revenue margin declined to 7.2% from 13.4% due to initial ramp-up costs associated with its international expansion efforts.
Operating expenses increased by 40.0% year-over-year, primarily due to expenses related to the acquisition of CHEQ Lifestyle Technology, Inc., as well as professional services costs for remediating previously identified material weaknesses in Cantaloupe's internal controls. Excluding these one-time items, the company's operating expenses as a percentage of revenue would have been flat compared to the prior year period.
Net income applicable to common shares for the third quarter was $4.4 million, or $0.06 per share, compared to $6.7 million, or $0.09 per share, in the same period last year. Adjusted EBITDA, a non-GAAP metric, was $10.2 million, up slightly from $10.1 million in the prior year quarter.
Fiscal Year 2024 Guidance
For the full fiscal year 2024, Cantaloupe now expects total revenue to be between $270 million and $275 million. The company anticipates that transaction and subscription revenue will be in the range of $232 million to $236 million. Cantaloupe has raised its adjusted EBITDA guidance to $33 million to $36 million, up from its previous range, reflecting improved profitability across both the transaction and subscription revenue streams. The company expects total U.S. GAAP net income to be between $12 million and $15 million, and total operating cash flow to be in the range of $24 million to $28 million.
International Expansion
Cantaloupe has been actively expanding its global footprint, with a particular focus on Europe and Latin America. In Europe, the company has now sold over 1,500 devices across more than 30 customers in the UK, Ireland, and Portugal. In Latin America, Cantaloupe recently signed a strategic partnership with one of the largest operators in Mexico, which is currently deploying close to 4,000 devices under the company's Cantaloupe One program. These international markets now account for thousands of connections, representing a significant milestone in Cantaloupe's global growth strategy.
The company has found that transaction processing rates in Europe are generally lower than in the U.S. due to the absence of interchange fees, but overall margins tend to be slightly higher. As Cantaloupe continues to build volume in these new markets, it expects margins to improve over time, though deployment timelines may remain elevated in the near term due to labor shortages.
Product Innovation and Partnerships
Cantaloupe has been actively investing in product innovation to drive growth and enhance its value proposition. The company recently launched several new offerings, including the Seed Pick Easy integration, which empowers operators to digitize their warehouse operations, and Seed Intelligence, a new data analytics tool that provides actionable insights to help customers grow their businesses.
The company has also been expanding its partner ecosystem, signing strategic agreements with key players in the industry. This includes a partnership with Innovative Display Works to become a preferred OEM manufacturer for Cantaloupe's Cooler Cafe solution, as well as a collaboration with Mendota Valley Amusement to bring Cantaloupe's cashless payment solutions to bar, restaurant, and family entertainment center partners across the United States.
Liquidity
As of March 31, 2024, Cantaloupe had $50.2 million in cash and cash equivalents on its balance sheet. The company's capital allocation priorities continue to focus on driving profitable growth, with a specific emphasis on operational improvements, expanding its micro market offerings, and investing in domestic and international go-to-market strategies and product development.
For the nine months ended March 31, 2024, Cantaloupe reported net income of $9.8 million, revenue of $195.9 million, operating cash flow of $13.5 million, and free cash flow of -$0.4 million. The company's current ratio stood at 1.56, and its quick ratio was 1.16, indicating a strong liquidity position.
Risks and Challenges
While Cantaloupe has demonstrated impressive growth and profitability, the company faces several risks and challenges that investors should be aware of. These include potential supply chain disruptions, labor shortages that could impact deployment timelines, and the ability to successfully integrate and execute on its international expansion strategy. Additionally, the company's reliance on a limited number of large customers and the potential for customer churn pose risks to its business model.
Conclusion
Cantaloupe, Inc. is a leading provider of self-service commerce solutions, leveraging its vertically integrated platform to drive growth and operational efficiencies for its diverse customer base. The company's strong financial performance, with double-digit revenue growth and improved profitability, coupled with its strategic international expansion and innovative product roadmap, position it well to capitalize on the growing demand for seamless self-service experiences. As Cantaloupe continues to execute on its growth initiatives, investors should closely monitor the company's ability to navigate the evolving competitive landscape and manage the risks inherent in its business model.