SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934
For the transition period from ____________________ to _____________________
Commission file number 001-33365
(Exact name of registrant as specified in its charter)
|(State or other jurisdiction of incorporation or organization)||(I.R.S. Employer Identification No.)|
|100 Deerfield Lane,||Suite 300,||Malvern,||Pennsylvania||19355|
|(Address of principal executive offices)||(Zip Code)|
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|Title of Each Class||Trading Symbol||Name Of Each Exchange On Which Registered|
|Common Stock, no par value||CTLP||The NASDAQ Stock Market LLC|
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
|Large accelerated filer||☐||Accelerated filer|
|Non-accelerated filer (Do not check if a smaller reporting company)||☐||Smaller reporting company||☐|
|Emerging growth company||☐|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Act). Yes ☐ No ☑
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter, December 31, 2020, was $567,017,906.
As of August 27, 2021, there were 71,258,047 outstanding shares of Common Stock, no par value.
Selected portions of the registrant’s definitive proxy statement on Schedule 14A for the registrant’s 2022 annual meeting of stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
In this Annual Report on Form 10-K, or Annual Report, and unless otherwise indicated, the terms "Cantaloupe", the "Company", "We", "CLTP", or "Our" refer to Cantaloupe, Inc., formerly known as USA Technologies, Inc. As discussed below, the Company changed its name on April 15, 2021.
This Form 10‑K contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding, among other things, the anticipated financial and operating results of Cantaloupe, Inc. For this purpose, forward-looking statements are any statements contained herein that are not statements of historical fact and include, but are not limited to, those preceded by or that include the words, “estimate,” “could,” “should,” “would,” “likely,” “may,” “will,” “plan,” “intend,” “believes,” “expects,” “anticipates,” “projected,” or similar expressions. Those statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and was derived using numerous assumptions. Important factors that could cause the Company’s actual results to differ materially from those projected, include, for example:
•general economic, market or business conditions unrelated to our operating performance, including the impact of the coronavirus disease 2019 (COVID-19) pandemic on the Company's operations, financial condition, and the demand for the Company’s products and services;
•potential mutations of COVID-19 and the efficacy of vaccines and treatment developments and their deployment;
•failure to comply with the financial covenants of our credit agreement with JPMorgan Chase Bank, N.A. entered into on August 14, 2020, as amended;
•the ability of the Company to raise funds in the future through sales of securities or debt financing in order to sustain its operations in the normal course of business or if an unexpected or unusual event would occur;
•the ability of the Company to compete with its competitors to obtain market share;
•whether the Company’s current or future customers purchase, lease, rent or utilize ePort devices, Seed's software solutions or our other products in the future at levels currently anticipated by our Company;
•whether the Company’s customers continue to utilize the Company’s transaction processing and related services, as our customer agreements are generally cancellable by the customer on thirty to sixty days’ notice;
•the ability of the Company to satisfy its trade obligations included in accounts payable and accrued expenses;
•the incurrence by us of any unanticipated or unusual non-operating expenses which would require us to divert our cash resources from achieving our business plan;
•the ability of the Company to predict or estimate its future quarterly or annual revenue and expenses given the developing and unpredictable market for its products;
•the ability of the Company to integrate acquired companies into its current products and services structure;
•the ability of the Company to retain key customers from whom a significant portion of its revenue are derived;
•the ability of a key customer to reduce or delay purchasing products from the Company;
•the ability of the Company to obtain widespread commercial acceptance of its products and service offerings such as ePort QuickConnect, mobile payment and loyalty programs;
•whether any patents issued to the Company will provide the Company with any competitive advantages or adequate protection for its products, or would be challenged, invalidated or circumvented by others;
•the ability of the Company to operate without infringing the intellectual property rights of others;
•the ability of our products and services to avoid disruptions to our systems or unauthorized hacking or credit card fraud;
•whether we will experience material weaknesses in our internal controls over financial reporting in the future, and are not able to accurately or timely report our financial condition or results of operations;
•the ability of the Company to remain in compliance with the continued listing standards of The Nasdaq Stock Market LLC (“Nasdaq”) and continue to remain as a member of the US Small-Cap Russell 2000®;
•whether our suppliers would increase their prices, reduce their output or change their terms of sale; and
•the risks associated with the currently pending investigation, potential litigation or possible regulatory action arising from the internal investigation conducted by the Audit Committee in fiscal year 2019 and its findings (the “2019 Investigation”), from the failure to timely file our periodic reports with the Securities and Exchange Commission, from the restatement of the affected financial statements, from allegations related to the registration statement for the follow-on public offering, or from potential litigation or other claims arising from these events.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Actual results or business conditions may differ materially from those projected or suggested in forward-looking statements as a result of various factors including, but not limited to, those described above and in Part I, Item 1A, “Risk Factors” of this Form 10‑K. We cannot assure you that we have identified all the factors that create uncertainties. Moreover, new risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. Readers should not place undue reliance on forward-looking statements.
Any forward-looking statement made by us in this Form 10‑K speaks only as of the date of this Form 10‑K. Unless required by law, we undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this Form 10‑K or to reflect the occurrence of unanticipated events.
Item 1. Business.
We are a digital payments and software services company that provides end-to-end technology solutions for the unattended retail market. We are transforming the unattended retail world by offering a solution for payments processing, as well as one that handles inventory management, pre-kitting, route logistics, warehouse and back-office management. Our enterprise-wide platform is designed to increase consumer engagement and sales revenue through digital payments, digital advertising and customer loyalty programs, while providing retailers with control and visibility over their operations and inventory. As a result, customers ranging from vending machine companies to operators of micro-markets, car wash, electric vehicle charging stations, commercial laundry, kiosks, amusements and more, can run their businesses more proactively, predictably, and competitively.
We derive the majority of our revenues from license and transaction fees resulting from transactions on, as well as services provided by, our ePort Connect™ and Seed™ software services. These services include digital payment processing, loyalty programs, inventory management, route logistics optimization, warehouse and accounting management, and responsive merchandising. Devices operating on the Company’s platform and using our services include those resulting from the sale or lease of our point of sale ("POS") electronic payment devices, telemetry devices or certified payment software or the servicing of similar third-party installed POS terminals or telemetry devices. The majority of ePort Connect customers pay a monthly fee plus a blended transaction rate on transaction volumes. Transactions on the ePort Connect service, are the most significant driver of the Company’s revenues, particularly revenues from software license and transaction fees.
Our customers range from global food service organizations to small businesses that operate primarily in the self-serve, small ticket retail markets including beverage and food vending, amusement and arcade machines, smartphones, commercial laundry, micro-markets, air/vacuum, car wash, electric vehicle, and various other self-serve kiosk applications as well as equipment developers or manufacturers who incorporate our ePort Connect service into their product offerings.
On November 17, 2020, the Nasdaq Stock Market LLC (“Nasdaq”) approved our application for the relisting of our common stock on the Nasdaq Global Select Market. Our common stock was relisted and commenced trading on the Nasdaq Global Select Market at the opening of the market on Thursday, November 19, 2020.
On March 4, 2021, the Company completed a private placement equity offering, raising gross proceeds of approximately $55 million with respect to the sale of an aggregate of 5,730,000 shares of the Company’s common stock. The Company intends to use the proceeds for general corporate purposes and working capital to support anticipated growth.
On March 29, 2021, the Company filed Articles of Amendment to its Amended and Restated Articles of Incorporation with the Pennsylvania Department of State to effect a change of the Company’s name from “USA Technologies, Inc.” to “Cantaloupe, Inc.,” effective as of April 15, 2021. On April 19, 2021, the Company’s common stock, no par value per share (the “Common Stock”), began trading on the NASDAQ Global Select Market under the ticker symbol “CTLP” and the Company’s Series A Convertible Preferred Stock, no par value per share, began trading on the OTC Markets’ Pink Open Market under the trading symbol, “CTLPP”.
We serve the small ticket digital payment and unattended retail markets. Our suite of products enable the acceptance of digital payments and allow our customers to simplify inventory, analytics, warehouse, logistics, and back-office management. We believe the following industry trends are driving growth in demand for digital payment systems and advanced logistics management in general and more specifically within the markets we serve:
•Higher demand for and more use of fast, simple and seamless digital purchase and payment experiences
•Many businesses addressed the need for convenience and safety during the pandemic by expanding into unattended retail via vending machines and kiosks;
•COVID-19 spurred continued growth in digital payment adoption, particularly contactless;
•Businesses seek additional services and solutions enabling them to leverage data and business intelligence; and
•Businesses are realizing operational efficiencies through modern, cloud-based logistics and inventory management solutions.
Shift Toward Digital Payments Is Here to Stay.
One lasting impact of COVID-19 was the creation of a ‘new normal’ for businesses and shoppers alike, accelerating the secular shift to touchless commerce. According to “The Visa Back to Business Study 2021 Outlook”; in June 2020 only 20% of small and micro businesses offered contactless payments for the first time, and in 2021, 39% of small and micro businesses report acceptance of new digital forms of payment. In addition, according to the above mentioned report, approximately 65% of consumers in the U.S. would prefer to use contactless payments. The need for convenience and safety have driven the trend, which is expected to continue.
Increasing Consumer Interest In Purchasing Non-Traditional Items through Unattended Retail.
A consumer survey of 2,000 people performed across the United States by the Company and CITE Research found that 82% of respondents have an interest in purchasing nontraditional items through vending machines, and the interest has significantly increased since the last survey in 2019. Clothing and Health and beauty products had the greatest two-year increase with 70% - 71% of respondents interested in purchasing these items from vending machines in 2021 compared to 55% for Clothing and 64% for Health and beauty in 2019 respectively.
We continue to transform the unattended retail industry by offering one integrated solution for payments processing, logistics, and back-office management. Our enterprise-wide platform is designed to increase consumer engagement and sales revenue through digital payments, digital advertising, and customer loyalty programs, while providing retailers with control and visibility over their operations and inventory. As a result, customers can run their businesses more proactively, predictably, and competitively. We offer customers several different ways to connect and manage their distributed assets. These range from our QuickConnect Web service, our Seed Cloud platform and our ePort® cashless hardware that can be attached to the door of a stand-alone terminal. Our ePort Connect platform is designed to transmit from our customers’ terminals payment information for processing, sales, and diagnostic data for storage and reporting to our customers through Seed Live and/or Seed Cloud, along with third-party software solutions and enables control of the networked device's functionality. Through our platform we have the ability to upload software and update devices remotely enabling us to manage the devices easily and efficiently (e.g., change protocol functionality, provide software upgrades, and change terminal display messages).
PRODUCTS AND SERVICES
ePort is the Company’s integrated payment device, which is currently deployed in self-service, unattended market applications such as vending, amusement, arcade, commercial laundry, air/vacuum, car wash, and others. Our ePort product facilitates digital payments by capturing payment information and transmitting it to our platform for authorization with the payment system (e.g., credit card processors). Additional capabilities of our ePort consist of control/access management by authorized users, collection of audit information (e.g., date and time of sale and sales amount), diagnostic information of the host equipment, and transmission of this data back to our platform for web-based reporting, or to a compatible remote management system. ePort has earned a reputation for quality, reliability, and innovation. Our ePort products are available in several distinctive modular hardware configurations, offering our customers flexibility to install a solution that best fits their needs and consumer demands. We offer hardware lease and rental options through our QuickStart and JumpStart programs.
•ePort G10-S is a 4G LTE digital payment device that enables faster processing and enhanced functionality for payment and consumer engagement applications. It supports functionality that requires higher speeds and large data loads, operates on the AT&T and Verizon networks, and has built-in NFC (contactless) support for mobile payments, traditional credit and debit cards, in addition to EMV-contactless and dip options.
•The ePort G10-Chip, is a digital reader that accepts contact EMV (chip cards) and contactless EMV (tap) payment methods. The reader functions with the existing G10 telemeter and reports into Seed Live or Seed Cloud similar to a G10-S reader (see below for a description of software services).
•Seed Telemeter is 4G LTE legacy telemetry device enabling operators to manage machine data across their network to realize the benefit of the Seed Cloud (see below for a description of software services).
•ePort Engage and the ePort Engage Combo, our latest iteration of the ePort series, are the next generation of digital touchscreen devices for the market and provides retailers the ability to captivate consumers in new ways and enables truly frictionless purchasing. ePort Engage will offer best-in-class networking, security and interactivity, including acceptance of contact EMV (chip cards) and contactless EMV (tap) payment methods. The devices can be fitted in a wide range of hardware configurations, including vending, kiosks, amusement, and electric vehicle charging stations. These devices can be pre-ordered by customers now and will be shipped out beginning October 2021.
We offer integrated software services that leverage payment devices in the field for the wireless transfer of our customers’ data to connect into our platform for advanced data management, analytics, route scheduling, as well as other offerings identified below:
•QuickConnect is a web service that allows a client application to securely interface with the Company’s ePort Connect service.
•ePortConnect is a digital payments gateway that connects devices through network solutions, to our back-end platform for processing payments, transferring data into cloud-based management software, inclusive of Seed Cloud and Seed Live, along with enabling third-party integrations.
•Seed Live is a software-as-a-service, that provides an intuitive portal for ePort digital device customers. The service offers an easy-to-use interface for tracking digital and cash sales, machine and device level maintenance monitoring, and sales reporting.
•Seed Cloud is a vending management solution which provides cloud and mobile solutions for advanced operational analytics, dynamic route scheduling, automated pre-kitting, proactive equipment malfunction management, responsive merchandising, inventory management, warehouse purchasing, and accounting management that is layered on, and takes advantage of, the data provided by both Seed and ePort devices. The Seed Cloud platform has a reputation for providing innovative software features and functionality that solve every day customer challenges. It includes Seed Pro for logistics optimization; Seed Office for back-office management; Seed Markets for integrated micro market management; and Seed Delivery for integrated online ordering and office coffee service ("OCS") optimization.
•ePort Online, which enables customers to use Seed Live to securely process cards typically held on file for the purpose of online billing and recurring charges. ePort Online helps our customers reduce paper invoicing and collections.
•Other Services: we offer services to support our customers that fully leverages our industry expertise and access to data. These services include our loyalty program, two-tier pricing and special promotions. In addition, we offer
planning, project management, deployment, installation support, Seed implementation, marketing and performance evaluation, as well as wireless connectivity.
We support our offerings through a number of back-office functions:
•Network Infrastructure. Our services and platforms operate on a combination of proprietary and third-party technologies and are supported by geographically diverse teams.
•Card Processing Services. Through our existing relationships with card processors and card associations, we provide merchant account and terminal ID set up, pre-negotiated discounted fees on small ticket purchases, and direct electronic funds transfers to our customers’ bank accounts for all settled card transactions as well as ensure compliance with processing protocols.
•Customer/Consumer Services. We support our services by providing help desk support, repairs, and replacement services. All inbound consumer billing inquiries are handled through a 24‑hour help desk, thereby reducing our customers’ exposure to consumer billing inquiries and potential chargebacks. We provide remote maintenance updates and enhancements to software, settings, and features to ePort card readers via wireless connections.
The unattended retail industry is highly competitive with service providers ranging from well-established enterprises to early stage companies within the financial technology and technology industries. The markets for Cantaloupe’s products and services are characterized by evolving industry standards, aggressive pricing, continuous innovation, and changing consumer trends. Many of the company’s competitors are challenging Cantaloupe’s industry leading position, particularly when it comes to pricing, emulating products, services, and marketing, as well as addressing consumer trends. However, we believe we have competitive strengths that position us favorably.
Consumers are expecting more from their shopping experience, with the intention of having access to buy what they want, when they want, with the ability to pay with any shape or form of digital currency. This has led to a multitude of new devices on the market that are all working towards similar objectives to enable a more engaging experience at the POS. In addition, competitors are entering the market with modernized back-end systems that are focused on the user interface along with real-life product planogram possibilities.
MARKETS WE SERVE
While the below key verticals represent only a fraction of our total market potential, as described below, these are the areas where we have gained the most traction to date.
Vending. According to the 2020 Census of the Convenience Services Industry, a study conducted by the NAMA Foundation and research firm Technomic, the US Convenience Services Industry, which consists of vending machines, micro markets, OCS and pantry services, represented total annual revenues of approximately $16 billion in 2020 compared to total annual revenues of approximately $27 billion in 2019, reflecting a reduction of approximately $11 billion and 40%. This was due to the impact of the coronavirus pandemic. The Convenience Services Industry is expected to be 64% larger in 2022 compared to 2020, and operators expect a full recovery to 2019 industry levels (pre-pandemic levels) by 2022-2023. In 2020, 80% of the Convenience Services Industry's total annual revenues came from the Vending segment while Micro Markets, OCS and Pantry Services segments represented approximately 12%, 7% and 1% of total annual revenues respectively.
Kiosk. According to the annually published "2021 Kiosk Market Census Report", for the first time in four years, the self-serve kiosk industry did not post a revenue gain in 2020, driven by the impacts of COVID-19.
Fortune Business Insights, projects that post pandemic the global kiosk market will grow from $22.7 billion in 2021 to $51.1 billion in 2028 at a compound annual growth rate ("CAGR") of 12.3% over the period. Currently, our existing kiosk customers integrate with our digital payment services via our QuickConnect Web service using one of our encrypted readers or ePort POS technologies.
Laundry. Our primary opportunities in laundry consist of the coin-operated commercial laundry and multi-housing laundry markets. Currently, our joint solution with an industry leader competes with hardware manufacturers, who provide joint solutions to their customers in partnership with payment processors, and with at least one competitor who provides an integrated hardware and payment processing solution.
Amusement and Entertainment. Our current customers and primary opportunities in the amusement and entertainment markets are typically classified as “street/route business,” which are standalone businesses that are open to the general public and that
offer card/coin-operated games such as claw machines, amusement park machines (i.e. body dryers), bowling alleys and bar entertainment (e.g. digital music machines and dart machines).
Micro Markets. According to the Automatic Merchandiser’s State of the Industry Annual Report published in July 2021, the vending and micro market business operators surveyed indicated that the number of micro market locations served increased 42% in 2020. This demonstrates that while COVID-19 impacted growth and new location placements in 2020, micro markets still experienced a significant level of growth during the year. We believe the desire to diversify product offerings to employees, while giving them their own convenience store with a micro market, will continue to increase.
Our primary opportunity in the micro markets vertical is providing a fully integrated solution to our customers which includes a point-of-sale platform and leveraging the Seed Markets offering to optimize our customers payments and logistics services including integrated route scheduling, warehouse pre-picking, and reporting.
Vehicle Services. Our primary opportunities in the vehicle services markets relate to businesses that provide air, vacuum, car wash, electric car charging and parking services. We improve the end customer experience by providing operational efficiency with one platform for cashless acceptance and business optimization. Currently, we partner with a leader in the air vending services by equipping their machines with our cashless acceptance devices.
OUR GROWTH OPPORTUNITY
Our primary objective is to continue to enhance our position as a leading provider of technology that enables electronic payment transactions, advanced logistics management, and value-added services primarily at small-ticket, self-service retail locations such as vending, kiosks, commercial laundry, and other similar markets. We plan to execute our growth strategy organically and through strategic acquisitions. Key elements of our strategy are to:
Leverage Existing Customers/Partners. Our current customers have seen the benefits of our products and services and we believe they continue to represent the largest opportunity to scale recurring revenue and connections, through the addition of new products and services, as well as expanding our footprint of current product offerings.
Capitalize on the Emerging Contactless, EMV, NFC, and Growing Mobile Payments Trends. With approximately 93% of our digital connected base enabled to accept NFC payments (including mobile wallets), we believe that continued consumer preference towards contactless payments, including mobile wallets like Apple Pay, Google Pay and Samsung Pay, represent a significant opportunity for the Company to further drive adoption in the current markets in which we provide services and solutions.
Expand into Micro Markets. In August 2021, we completed the acquisition of certain assets and liabilities of Delicious Nutritious LLC, doing business as Yoke Payments (“Yoke”), a micro market payments company. Through the acquisition, Yoke’s POS platform will now extend its offering to provide self-checkout while seamlessly integrating with Cantaloupe’s inventory management and payment processing platforms. Yoke’s technology currently integrates seamlessly with major platforms, enabling faster onboarding through a plug and play setup that simplifies operations and reduces costs, creating a profitable and scalable micro-market solution for small to medium business; as well as enterprise customers looking to maximize existing locations. We plan to differentiate ourselves by providing a single platform to manage consumer and operational aspects of micro markets, while also integrating multiple service providers for flexibility and ultimate ease to our customers.
Continuous Innovation. We are continuously enhancing our solutions and services with additional features and functionality. We are making investments in new products and services, and continuously partnering with other players within the ecosystem to drive additional value of combined service offerings to our customers and opportunities. We believe our continued innovation will lead to further adoption of Cantaloupe’s solutions and services in the unattended POS payments market.
Comprehensive Service and Support. In addition to its industry-leading ePort digital payments system and Seed logistics software, the Company seeks to provide its customers with a comprehensive, value-added ePort Connect and Seed service that is designed to encourage optimal return on investment through business planning and performance optimization; acceptance of crypto payments, and a loyalty and rewards program for consumer engagement; marketing strategy and executional support; sales data and machine alerts; DEX data transmission; and the ability to extend digital payments capabilities and the full suite of services across multiple aspects of an operator’s business including the micro-markets contract food industry, online payments and mobile payments.
Further Penetrate Attractive Adjacent Markets. We plan to continue to introduce our turn-key solutions and services to various adjacent markets such as the broad-based kiosk market and other similar markets by leveraging our expertise in digital payment integration combined with the capacity and uniqueness of our Seed platform. We plan to leverage the Seed platform to extend route optimization tools into other verticals where static schedules are not optimal for service visits. In addition, Seed Pro’s patented dynamic route scheduling capabilities can support optimal servicing and decreased operational costs.
Capitalize on Opportunities in International Markets. We are currently focused on the U.S. and Canadian markets for our ePort devices and related ePort Connect service and Seed Cloud, but may seek to establish a presence in electronic payment markets outside of the U.S. and Canada. In order to do so, we have dedicated sales resources to spearhead international opportunities, starting with Latin America, the Caribbean and Asia.
SALES AND MARKETING
Our sales strategy includes both direct sales and channel development, depending on the particular dynamics of each of our markets. Our direct sale efforts are supported by both inside and external sales team members, which are aligned to serve our enterprise and our small- and medium-business (SMB) customers and prospects. In order to expand our sales reach, we have agreements with resellers in select market segments. Our marketing strategy includes advertising and outreach initiatives designed to build brand awareness, position our company’s thought leadership within unattended retail, make clear our competitive strengths, and prove the value of our products and services to our opportunity markets. Activities include creating a vibrant company and product presence on the web, digital advertising, Search Engine Optimization ("SEO"), and social media; the use of direct mail and email campaigns; educational and instructional online training sessions; content curation through blogs, whitepapers, guides, podcasts, and joint industry studies; advertising in vertically-oriented trade publications; participating in industry tradeshows and events; and working closely with customers and key strategic partners on co-marketing opportunities that drive customer and consumer adoption of our services.
As of June 30, 2021, we are marketing and selling our products primarily through our full and part-time sales and marketing staff consisting of 35 people.
Our most important relationships are with our almost 20,000 customers, which are governed by services agreements that provide for terms and conditions of purchase, rental, or lease of the devices, licensing of our solutions, and processing services. Under the terms, we typically collect our fees from settled funds, including activation fees, monthly service fees, and transaction processing fees. Our relationships with certain large customers are governed by customized terms and conditions contained within individually negotiated services agreements.
We maintain broad and long-standing relationships with card industry associations, including our listing on the Visa Global Registry of Service Providers. From time to time, we enter into short-term incentive and promotional agreements with the card industry counterparties.
We maintain close relationships with domestic wireless telecommunications carriers and with which we have long-term bespoke pricing and support terms.
We have long-term agreements with our payment processors, each of which is seamlessly integrated with our products and customers.
As part of our strategy to expand our sales reach while optimizing resources, we have agreements with select resellers within the industries we serve.
Lastly, we have a number of key vendors supporting our network environment and technology, our product development and our product offerings.
MANUFACTURING AND SUPPLY CHAIN
We utilize independent third-party manufacturing partners to produce the substantial majority of our hardware products that we market and sell to our customers. Production by our manufacturing partners is performed in accordance with our product specifications, quality control and compliance standards. For the years ended June 30, 2021 and June 30, 2020 our manufacturing activities principally took place in the United States and Mexico.
Our internal processes center around quality assurance of materials and testing of finished goods received from our contract manufacturers.
As a result of COVID-19, the technology industry is experiencing some delays within supply chain. We have not experienced significant disruptions to date; however we are continually monitoring and evaluating manufacturing partners to accommodate our expected growth and minimize potential risks of disruption within our supply chain operations.
TRADEMARKS, PROPRIETARY INFORMATION, AND PATENTS
The Company owns US federal registrations for the following trademarks and service marks: Because Machines Can’t Cry For Help®, Blue Light Sequence®, Business Express®, Buzzbox®, Cantaloupe circle logo (design only), Cantaloupe Systems®, Cantaloupe Systems & design (Cantaloupe circle logo), Creating Value Through Innovation®, Compuvend®, CM2iQ®, EnergyMiser®, ePort®, ePort Connect®, ePort Mobile & design, eSuds®, Intelligent Vending®, Openvdi®, PC EXPRESS®, Routemaster®, Seed®, Seed & design, SeedCashless & design, Seed Office®, SnackMiser®, TransAct®, USA Technologies® Seed Live®, VendingMiser®, VendPro®, VENDSCREEN®, VM2iQ®, and Warehouse Master®.
Much of the technology developed or to be developed by the Company is subject to trade secret protection. To reduce the risk of loss of trade secret protection through disclosure, the Company has entered into confidentiality agreements with its key employees.
From the incorporation of our Company in 1992, through June 30, 2021, 132 patents have been granted to the Company or its subsidiaries, including 96 United States patents and 36 foreign patents, and 6 United States and international patent applications are pending. Of the 132 patents, 54 are still in force at June 30, 2021. Our patents expire between 2021 and 2038.
ACTIVE DEVICES AND ACTIVE CUSTOMERS
During fiscal year 2021, management updated the business metrics we use for insight into the Company’s performance and growth trends. We discontinued tracking and reporting connections and now provide information on Active Devices and Active Customers, which we believe is a better representation of our business.
Active Devices are devices that have communicated with us or have had a transaction in the last twelve months. Included in the number of Active Devices are devices that communicate through other devices that communicate or transact with us. A self-service retail location that utilizes an ePort cashless payment device as well as Seed management services constitutes only one device.
We define Active Customers as all customers with at least one active device.
We had 19,834 Active Customers and 1.09 million Active Devices connected to our service as of June 30, 2021 compared to 17,249 Active Customers and 1.08 million Active Customers as of June 30, 2020.
HUMAN CAPITAL MANAGEMENT
As of June 30, 2021, the Company had 181 full-time employees and 4 part-time employees compared to 141 full-time employees and 6 part-time employees as of June 30, 2020. This represents a headcount increase of approximately 26% over prior year. Headcount growth has occurred primarily in our Sales, Customer Support and Technology departments to support our expanding business and execute our strategic initiatives including continued investing in our integrated product offering and providing highest levels of customer service. Headcount also increased in our Finance and Accounting department as we reduced our reliance on third party consultants for accounting and reporting related support. We believe our ability to attract and retain qualified employees in all areas of our business is critical to our future success and growth. We seek employees who share a passion for our technology and its ability to improve our customers’ businesses.
We also use temporary employees and contractors in the ordinary course of business. We believe that our relations with our employees are good. None of our employees are represented by a collective bargaining agreement.
We offer our employees wages and benefit packages that we believe are competitive with others throughout our industry. In addition to salaries, we provide benefits that include a 401(k) retirement savings plan, healthcare and insurance benefits, health savings and flexible spending accounts, tuition reimbursement, paid time off, as well as other benefits including a paid parental leave policy.
During the COVID-19 pandemic, we prioritized the health and safety of our employees while continuing to diligently serve our customers. An internal task force was created at the start of the pandemic to develop measures to protect the business in light of the volatility and uncertainty caused by the COVID-19 pandemic. We implemented significant changes such as having most of our employees work from home until the pandemic eases while implementing additional safety measures for employees continuing critical on-site work at either the Company or customers’ locations. We have taken, and will continue to take, actions in accordance with the applicable local guidance, such as the guidance provided by the Centers for Disease Control and Prevention in the United States, to protect our employees so they can safely and effectively perform their work.
Annually we ask our employees to complete a Company-wide employee engagement survey. The survey is facilitated internally through our Human Resources department. The survey reflects questions to gauge employee sentiments toward current trends and issues including company direction and strategy, communication by management, individual development, team culture, and overall satisfaction. With the information provided by the annual engagement survey, leadership is provided key insights and valuable feedback which we continue to implement in our Company-wide action plans with the intent to focus on key areas to prioritize, enhance, and drive continued increase in employee engagement, learning and development, and professional growth for our employees.
The public may access any materials the Company files with the Securities and Exchange Commission (“SEC”), including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements for our annual stockholder meetings, and amendments to those reports, through the SEC’s Interactive Data Electronic Applications system at http://www.sec.gov. These reports are also available free of charge on our website, www.cantaloupe.com, as soon as reasonably practicable after we electronically file the material with the SEC. In addition, our website includes, among other things, charters of the various committees of our Board of Directors and our code of business conduct and ethics applicable to all employees, officers and directors. Within the time period required by the SEC, we will post on our website any amendment to the code of business conduct and ethics and any waiver applicable to any executive officer, director or senior financial officer. We use our website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings and public conference calls and webcasts.
Item 1A. Risk Factors.
The risks and uncertainties describe below are not the only ones we face. There may be other unknown or unpredictable economic, business, competitive, regulatory or other factors that could have material adverse effects on our future results. The occurrence of any of these risks could materially adversely affect our business, financial condition, results of operations and cash flows. Accordingly, you should carefully consider the following risk factors, as well as other information contained in or incorporated by reference in this Annual Report.
You should read this summary together with the more detailed description of each risk factor contained below. Our business operations are subject to numerous risks and uncertainties, including those outside of our control, that could cause our actual results to be harmed, including risks regarding the following:
Risks related to our business and our industry:
•We have a history of losses since inception and if we continue to incur losses, the price of our shares can be expected to fall.
•The coronavirus pandemic has and may continue to significantly and adversely impact our business.
•If we are not able to implement successful enhancements and new features for our products and services, our business could be materially and adversely affected.
•Substantially all of the network service contracts with our customers are terminable for any or no reason upon thirty to sixty days’ advance notice.
•We may not successfully implement our go-to-market strategy which may adversely affect growth and profitability.
•Our ability to commercially manage the transition from the 3G network could lead to competitive disadvantage in the marketplace.
•The loss of one or more of our key customers could significantly reduce our revenues, results of operations, and increase net losses.
•Increases in card association and debit network interchange fees could increase our operating costs or otherwise adversely affect our operations.
Operational and liquidity:
•We depend on our key personnel and, if they leave us, or if we are unable to attract highly skilled personnel, our business could be adversely affected.
•Disruptions to our systems, breaches in the security of transactions involving our products or services, or failure of our processing systems could adversely affect our reputation, business and results of operations.
•The termination of our relationships with certain third-party suppliers upon whom we rely for services that are critical to our products could adversely affect our business and delay achievement of our business plan.
•We rely on other card payment processors, and if they fail or no longer agree to provide their services or we fail to operate in compliance with the requirements of those relationships, our customer relationships could be adversely affected, and we could lose business.
•Disruptions at other participants in the financial system could prevent us from delivering our cashless payment services.
•Any increase in chargebacks not paid by our customers may adversely affect our results of operations, financial condition and cash flows.
•Our dependence on proprietary technology and limited ability to protect our intellectual property may adversely affect our ability to compete.
•We may require additional financing or find it necessary to raise capital to sustain our operations and without it we may not be able to achieve our business plan.
•Failure to comply with any of the financial covenants under the Company’s credit agreement could result in an event of default which may accelerate our outstanding indebtedness or other obligations and have a material adverse impact on our business, liquidity position and financial position.
Legal, regulatory, and compliance risks:
•We are subject to laws and regulations that affect the products, services and markets in which we operate. Failure by us to comply with these laws or regulations would have an adverse effect on our business, financial condition, or results of operations.
•The accounting review of our previously issued financial statements and the audits of prior fiscal years have been time-consuming and expensive, has resulted in claims and lawsuits , and may result in additional expense and/or litigation.
•Matters relating to or arising from the restatement and the 2019 Investigation, including adverse publicity and potential concerns from our customers could continue to have an adverse effect on our business and financial condition.
•Matters relating to recent U.S. Department of Justice (“DOJ”) inquiries initially received in the third quarter of fiscal year 2020 may require significant time and attention, result in substantial expenses and lead to adverse publicity.
•We and certain of our former officers and directors could be subject to future claims and lawsuits, which could require significant additional management time and attention, result in significant additional legal expenses or result in government enforcement actions.
•Failure to maintain effective systems of internal control over financial reporting and disclosure controls and procedures could cause a loss of confidence in our financial reporting and adversely affect the trading price of our common stock.
Risks related to our common stock:
•Director and officer liability is limited and shareholders may have limited rights to recover against directors for breach of fiduciary duty.
•An active trading market for our common stock may not be maintained.
•If securities and/or industry analysts fail to continue publishing research about our business, if they change their recommendations adversely, or if our results of operations do not meet their expectations, our stock price and trading volume could decline.
•There is a risk that we may be dropped from inclusion in the Russell 2000® Index which could result in a decline in the price of our stock.
•Upon certain fundamental transactions involving the Company, such as a merger or sale of substantially all of our assets, we may be required to distribute the liquidation preference then due to the holders of our Series A Preferred Stock which would reduce the amount of the distributions otherwise to be made to the holders of our common stock in connection with such transactions.
Risks related to our business and our industry
We have a history of losses since inception and if we continue to incur losses, the price of our shares can be expected to fall.
We experienced losses from inception through June 30, 2012, and from fiscal year 2015 through fiscal year 2021. For fiscal years 2021, 2020, and 2019, we incurred a net loss of $8.7 million, $40.6 million, and $29.9 million, respectively. In light of our recent history of losses as well as the length of our history of losses, profitability in the foreseeable future is not assured. Until we achieve profitability, we will be required to use our cash and cash equivalents on hand and may raise capital to meet cash flow requirements including the issuance of common stock or debt financing. Additionally, if we continue to incur losses in the future, the price of our common stock can be expected to fall.
The coronavirus disease 2019 (“COVID-19”) pandemic has and may continue to significantly and adversely impact our business.
The global spread of the COVID-19 pandemic has created significant volatility, uncertainty and economic disruption on our business. Electronic payment transaction volume within unattended markets decreased significantly at the onset of the pandemic, as government authorities imposed forced closure of non-essential businesses and social distancing protocols, significantly reducing foot traffic to distributed assets containing our electronic payment solutions and reducing discretionary spending by consumers.
The extent to which the COVID-19 pandemic continues to impact our business, operations and financial results will depend on numerous evolving factors that we are not able to accurately predict, including: the duration and scope of the pandemic; potential mutations of COVID-19; the efficacy of vaccines and treatment developments and their deployment; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; and the impact of the pandemic on economic activity and actions taken in response. Furthermore, even as containment measures are lifted there can be no assurance as to whether further measures will be implemented or the time required to sustain operations and sales at pre-pandemic levels. There may also be increased marketplace consolidation as companies are challenged to respond to the continued evolving conditions of COVID-19.
A sustained or recurring downturn could result in a decrease in the fair value of our goodwill or other intangible assets, causing them to exceed their carrying value. This may require us to recognize an impairment to those assets. Further, the COVID-19 pandemic could decrease consumer spending, adversely affect demand for our technology and services, cause one or more of our customers and partners to file for bankruptcy protection or go out of business, cause one or more of our customers to fail to renew, terminate, or renegotiate their contracts, affect the ability of our sales team to travel to potential customers, impact expected spending from new customers and negatively impact collections of accounts receivable, all of which could adversely affect our business, results of operations and financial condition. In response to the outbreak, we agreed to concessions on price and/or payment terms with certain customers who have been negatively impacted by the COVID-19 pandemic, and may negotiate additional concessions on price and/or payment terms.
It is not possible for us to predict the future impact of the pandemic and its effects on our business, results of operations or financial condition at this time.
If we are not able to implement successful enhancements and new features for our products and services, our business could be materially and adversely affected.
Our success depends on our ability to develop new products and services to address the rapidly evolving market for cashless payments and cloud and mobile solutions for the self-service retail markets. Rapid and significant technological changes continue to confront the industries in which we operate, including developments in proximity payment devices. These new services and technologies may be superior to, impair, or render obsolete the products and services we currently offer or the technologies we currently use to provide them. Incorporating new technologies into our products and services may require substantial expenditures and take considerable time, and we may not be successful in realizing a return on these development efforts in a timely manner or at all. There can be no assurance that any new products or services we develop and offer to our customers will achieve significant commercial acceptance. Our ability to develop new products and services may be inhibited by industry-wide standards, payment card networks, existing and future laws and regulations, resistance to change from our customers, or third parties’ intellectual property rights. If we are unable to provide enhancements and new features for our products and services or to develop new products and services that achieve market acceptance or that keep pace with rapid technological developments and evolving industry standards, our business would be materially and adversely affected.
In addition, because our products and services are designed to operate with a variety of systems, infrastructures, and devices, we need to continuously modify and enhance our products and services to keep pace with changes in mobile, software, communication, and database technologies. We may not be successful in either developing these modifications and enhancements or in bringing them to market in a timely and cost-effective manner. Any failure of our products and services to continue to operate effectively with third-party infrastructures and technologies could reduce the demand for our products and services, result in dissatisfaction of our customers, and materially and adversely affect our business.
Substantially all of the network service contracts with our customers are terminable for any or no reason upon thirty to sixty days’ advance notice.
Substantially all of our customers may terminate their services with us for any or no reason upon providing us with thirty to sixty- days’ advance notice. Accordingly, consistent demand for and satisfaction with our products by our customers is critical to our financial condition and future success. Problems, outages, defects, or other issues with our products or services or competition in the marketplace could cause us to lose a substantial number of our customers with minimal notice. If a substantial number of our customers were to exercise their termination rights, it would result in a material adverse effect to our business, operating results, and financial condition.
We may not successfully implement our go-to-market strategy which may adversely affect growth and profitability.
Our current core business is highly concentrated among several large customers in the vending industry. We have made inroads into other adjacent markets including laundry, gaming, entertainment and other commercial payments applications and continued expansion into these markets is a substantial piece of our potential future growth prospects. Changing technology, customer preferences, and competitor actions may limit our ability to successfully grow and expand beyond our core business.
Our ability to commercially manage the transition from the 3G network could lead to competitive disadvantage in the marketplace.
Our transition away from the 3G wireless network is underway as the cellular service providers phase these networks out in North America through the end of the 2022 calendar year. This transition will affect a large portion of our active devices and will require a new customer retention initiative to ensure that our existing customer base is properly transitioned to the new platform. This change affects our industry and will also lead to changes with our competitors and their customers. Our ability to successfully transition and provide the new platform for our existing and new customers is critical to our strategy, our network and to the competitive landscape in the marketplace.
The loss of one or more of our key customers could significantly reduce our revenues, results of operations, and increase net losses.
We have derived, and believe we will continue to derive, a significant portion of our revenues from one large customer or a limited number of large customers. Customer concentrations for the years ended June 30, 2021, 2020 and 2019 were as follows:
|For the year ended June 30,|
|Total revenue||16 ||%||16 ||%||17 ||%|
The loss of such customers could materially adversely affect our revenues. Additionally, a major customer in one year may not purchase any of our products or services in another year, which may negatively affect our financial performance. We have offered, and may in the future offer, discounts to our large customers to incentivize them to continue to utilize our products and services. If we are required to sell products to any of our large customers at reduced prices or unfavorable terms, our revenue and earnings could be materially adversely affected. Further, there is no assurance that our customers will continue to utilize our transaction processing and related services as our customer agreements are generally cancellable by the customer on thirty to sixty days’ notice.
Increases in card association and debit network interchange fees could increase our operating costs or otherwise adversely affect our operations.
We are obligated to pay interchange fees and other network fees set by the bankcard networks to the card issuing bank and the bankcard networks for each transaction we process through our network. From time to time, card associations and debit networks increase the organization and/or processing fees, known as interchange fees that they charge. Under our processing agreements with our customers, we are permitted to pass along these fee increases to our customers through corresponding
increases in our processing fees. Passing along such increases could result in some of our customers canceling their contracts with us. Consequently, it is possible that competitive pressures will result in our Company absorbing some or all of the increases in the future, which would increase our operating costs, reduce our gross profit and adversely affect our business.
Operational and liquidity
We depend on our key personnel and, if they leave us, or if we are unable to attract highly skilled personnel, our business could be adversely affected.
We are dependent on key management personnel, including the Chief Executive Officer, Sean Feeney, the rest of the executive leadership team, and several functional areas within the Company. The loss of services from these officers and employees could dramatically affect our business prospects. Our executive officers and certain of our officers and employees are particularly valuable to us because:
•they have specialized knowledge about our company and operations;
•they have specialized skills that are important to our operations; or
•they would be particularly difficult to replace.
We have entered into an employment agreement with Mr. Feeney, which contains customary restrictive covenants, including perpetual confidentiality, non-disparagement, and intellectual property covenants, as well as a non-compete, non-solicit of customers and suppliers, and non-solicit of employees (including a no-hire) that each apply during employment and for two years following any termination.
Our success and future growth also depends, to a significant degree, on the skills and continued services of our management team. Further, due to the complexity of the work required to make needed improvements within the Company, it may be difficult for us to retain existing senior management and new hires, sales personnel, and development and engineering personnel critical to our ability to execute our business plan, which could result in harm to key customer relationships, loss of key information, expertise or know-how and unanticipated recruitment and training costs. We may experience a loss of productivity due to the departure of key personnel and the associated loss of institutional knowledge, or while new personnel integrate into our business and transition into their respective roles. Our future success also depends on our ability to attract and motivate highly skilled technical, managerial, sales, marketing and customer service personnel, including members of our management team.
Disruptions to our systems, breaches in the security of transactions involving our products or services, or failure of our processing systems could adversely affect our reputation, business and results of operations.
We rely on information technology and other systems to transmit financial information of consumers making cashless transactions and to provide accounting and inventory management services to our customers. As such, the information we transmit and/or maintain is exposed to the ever-evolving threat of compromised security, in the form of a risk of potential breach, system failure, computer virus, cyber-attack or unauthorized or fraudulent use by consumers, customers, company employees, or employees of third party vendors. A cybersecurity breach could result in disclosure of confidential information and intellectual property, or cause operational disruptions and compromised data. We may be unable to anticipate or prevent techniques to obtain unauthorized access or to sabotage systems because they change frequently and often are not detected until after an incident has occurred.
In addition, our processing systems may experience errors, interruptions, delays or damage from a number of causes, including, but not limited to, power outages, hardware, software and network failures, internal design, manual or usage errors, terrorism, workplace violence or wrongdoing, catastrophic events, natural disasters and severe weather conditions. The steps we take to deter and mitigate these risks, including annual validation of our compliance with the Payment Card Industry Data Security Standard, may not be successful, and any resulting compromise or loss of data or systems could adversely impact the marketplace acceptance of our products and services, and could result in significant remedial expenses to not only assess and repair any damage to our systems, but also to reimburse customers for losses that occur from service interruptions or the fraudulent use of confidential data. Additionally, we could become subject to significant fines, litigation, and loss of reputation, potentially impacting our financial results.
The termination of our relationships with certain third-party suppliers upon whom we rely for services that are critical to our products could adversely affect our business and delay achievement of our business plan.
The operation of our networked devices depends upon the capacity, reliability and security of services provided to us by our wireless telecommunication services providers, equipment manufacturers and other suppliers. In addition, if we terminate relationships with our current telecommunications service providers and other third-party suppliers, we may have to replace hardware that is part of our existing ePort or Seed products that are already installed in the marketplace. This could significantly harm our reputation and could cause us to lose customers and revenues.
We rely on other card payment processors, and if they fail or no longer agree to provide their services or we fail to operate in compliance with the requirements of those relationships, our customer relationships could be adversely affected, and we could lose business.
We rely on agreements with other large payment processing organizations, primarily Chase Paymentech, Global Payments, Inc., formerly Heartland Payment Systems, Inc. and First Data, to enable us to provide card authorization, data capture and transmission, settlement and merchant accounting services for the customers we serve. The termination by our card processing providers of their arrangements with us or their failure to perform their services efficiently and effectively would adversely affect our relationships with the customers whose accounts we serve and may cause those customers to terminate their processing agreements with us.
Further, substantially all of the cashless payment transactions handled by our network involve Visa U.S.A. Inc. (“Visa”) or MasterCard International Incorporated ("MasterCard"). If we fail to comply with the applicable standards or requirements of the Visa and MasterCard card associations relating to security, Visa or MasterCard could suspend or terminate our registration with them. The termination of our registration with them or any changes in the Visa or MasterCard rules that would impair our registration with them could require us to stop providing cashless payment services through our network. In such event, our business plan and/or competitive advantages in the market place would be materially adversely affected.
Disruptions at other participants in the financial system could prevent us from delivering our cashless payment services.
The operations and systems of many participants in the financial system are interconnected. Many of the transactions that involve our cashless payment services rely on multiple participants in the financial system to accurately move funds and communicate information to the next participant in the transaction chain. A disruption for any reason at one of the participants in the financial system could impact our ability to cause funds to be moved in a manner to successfully deliver our services. Although we work with other participants to avoid any disruptions, there is no assurance that such efforts will be effective. Such a disruption could lead to the inability for us to deliver services, reputational damage, lost customers and lost revenue, loss of customers’ confidence, as well as additional costs, all of which could have a material adverse effect on our revenues, profitability, financial condition, and future growth.
Any increase in chargebacks not paid by our customers may adversely affect our results of operations, financial condition and cash flows.
In the event a dispute between a cardholder and a customer is not resolved in favor of the customer, the transaction is normally charged back to the customer and the purchase price is credited or otherwise refunded to the cardholder. When we serve as merchant of record, if we are unable to collect such amounts from the customer's account, or if the customer refuses or is unable, due to closure, bankruptcy or other reasons, to reimburse us for a chargeback, we bear the loss for the amount of the refund paid to the cardholder. We may experience significant losses from chargebacks in the future. Any increase in chargebacks not paid by our customers could have a material adverse effect on our business, financial condition, results of operations and cash flows. We have policies to manage customer-related credit risk and attempt to mitigate such risk by monitoring transaction activity. Notwithstanding our programs and policies for managing credit risk, it is possible that a default on such obligations by one or more of our customers could have a material adverse effect on our business.
Our dependence on proprietary technology and limited ability to protect our intellectual property may adversely affect our ability to compete.
Challenge to our ownership of our intellectual property could materially damage our business prospects. Our technology may infringe upon the proprietary rights of others. Our ability to execute our business plan is dependent, in part, on our ability to obtain patent protection for our proprietary products, maintain trade secret protection and operate without infringing the proprietary rights of others.
As of June 30, 2021, the United States Government and other countries have granted us 132 patents, of which 54 are still in force. We have a number of pending patent applications, and will consider filing applications for additional patents covering aspects of our future developments, although there can be no assurance that we will do so. In addition, there can be no assurance that we will maintain or prosecute these applications. There can be no assurance that:
•any of the remaining patent applications will be granted to us;
•we will develop additional products that are patentable or that do not infringe the patents of others;
•any patents issued to us will provide us with any competitive advantages or adequate protection for our products;
•any patents issued to us will not be challenged, invalidated or circumvented by others; or
•any of our products would not infringe the patents of others.
If any of our products or services is found to have infringed any patent, there can be no assurance that we will be able to obtain licenses to continue to manufacture, use, sell, and license such product or service or that we will not have to pay damages and/or be enjoined as a result of such infringement.
If we are unable to adequately protect our proprietary technology or fail to enforce or prosecute our patents against others, third parties may be able to compete more effectively against us, which could result in the loss of customers and our business being adversely affected. Patent and proprietary rights litigation entails substantial legal and other costs and diverts Company resources as well as the attention of our management. There can be no assurance we will have the necessary financial resources to appropriately defend or prosecute our intellectual property rights in connection with any such litigation.
We may require additional financing or find it necessary to raise capital to sustain our operations and without it we may not be able to achieve our business plan.
At June 30, 2021, we had a net working capital surplus of $65.6 million and cash and cash equivalents of $88.1 million. We had net cash provided by (used in) operating activities of $8.2 million, $(14.1) million, and $(28.2) million for fiscal years ended 2021, 2020, and 2019, respectively. Unless we maintain or grow, we may need additional funds to continue these operations. We may also need additional capital to respond to unusual or unanticipated non-operational events. Such non-operational events include but are not limited to shareholder class action lawsuits, government inquiries or enforcement actions that could potentially arise from the circumstances that gave rise to our restatements, extended filing delays in filing our periodic reports and the impact of COVID-19 on our business. Should the financing that we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences could have a material adverse effect on our business, operating results, financial condition and future prospects.
Failure to comply with any of the financial covenants under the Company’s credit agreement could result in an event of default which may accelerate our outstanding indebtedness or other obligations and have a material adverse impact on our business, liquidity position and financial position.
On August 14, 2020, the Company entered into a credit agreement with JPMorgan Chase Bank, N.A. (the “2021 JPMorgan Credit Agreement”) for a $5 million secured revolving credit facility and a $15 million secured term facility, which includes an uncommitted expansion feature that allows the Company to increase the total revolving commitments and/or add new tranches of term loans in an aggregate amount not to exceed $5 million. The obligations under the 2021 JPMorgan Credit Agreement are secured by first priority security interest in substantially all of the Company's assets. The 2021 JPMorgan Credit Agreement contains financial covenants requiring the Company (i) to maintain an adjusted quick ratio of not less than 2.00 to 1.00 beginning August 14, 2020, not less than 2.50 to 1.00 beginning October 1, 2020, not less than 2.75 to 1.00 beginning January 1, 2021 and 3.00 to 1.00 beginning April 1, 2021 and (ii) to maintain, as of the end of each of its fiscal quarters commencing with the fiscal quarter ended December 31, 2021, a total leverage ratio of not greater than 3.00 to 1.00.
The Company was in compliance with its financial covenants as of June 30, 2021. Failure to comply with the foregoing financial covenants, if not cured or waived, will result in an event of default that could trigger acceleration of our indebtedness, which would require us to repay all amounts owed under the 2021 JPMorgan Credit Agreement and could have a material adverse impact on our business, liquidity position and financial position.
We cannot be certain that our future operating results will be sufficient to ensure compliance with the financial covenants in our 2021 JPMorgan Credit Agreement or to remedy any defaults. In addition, in the event of any event of default and related acceleration, we may not have or be able to obtain sufficient funds to make the accelerated payments required under the 2021 JPMorgan Credit Agreement.
Legal, regulatory, and compliance risks
We are subject to laws and regulations that affect the products, services and markets in which we operate. Failure by us to comply with these laws or regulations would have an adverse effect on our business, financial condition, or results of operations.
We are, among other things, subject to certain banking regulations and credit card association regulations. Failure to comply with these regulations may result in the suspension of our business, the limitation, suspension or termination of service, and/or the imposition of fines that could have an adverse effect on our financial condition. Additionally, changes to legal rules and regulations, or interpretation or enforcement thereof, could have a negative financial effect on us or our product offerings. To the extent this occurs, we could be subject to additional technical, contractual or other requirements as a condition of our continuing to conduct our payment processing business. These requirements could cause us to incur additional costs, which could be significant, or to lose revenues to the extent we do not comply with these requirements.
The accounting review of our previously issued financial statements and the audits of prior fiscal years have been time-consuming and expensive, has resulted in claims and lawsuits , and may result in additional expense and/or litigation.
In fiscal year 2019, the Audit Committee, with the assistance of independent legal and forensic accounting advisors, conducted an internal investigation of then-current and prior period matters relating to certain of the Company’s contractual arrangements, including the accounting treatment, financial reporting and internal controls related to such arrangements (the “2019 Investigation”).
We have incurred significant expenses, including audit, legal, consulting and other professional fees, in connection with the 2019 Investigation, the review of our accounting, the audits, the restatements of previously filed financial statements, bank consents, the remediation of deficiencies in our internal control over financial reporting, the proxy solicitation, and professional services fees to assist the Company with accounting and compliance activities in fiscal year 2020 following the filing of the 2019 Form 10-K. For the years ended June 30, 2020 and 2019, the Company incurred $19.8 million and $16.1 million of those costs. To the extent that steps we are continuing to take to reduce errors in accounting determinations are not successful, we could be forced to incur significant additional time and expense. The incurrence of significant additional expense, or the requirement that management devote significant time that could reduce the time available to execute on our business strategies, could have a material adverse effect on our business, results of operations and financial condition.
Although we have completed the restatement, we cannot guarantee that we will not receive inquiries from the Securities and Exchange Commission (“SEC”) or other regulatory authorities regarding our restated financial statements or matters relating thereto, or that we will not be subject to future claims, investigations or proceedings. Any future inquiries from the SEC or other regulatory authorities, or future claims or proceedings or any related regulatory investigation will, regardless of the outcome, likely consume a significant amount of our internal resources and result in additional legal and accounting costs.
For additional discussion, see Note 17 to our consolidated financial statements. Our management has been, and may in the future be, required to devote significant time and attention to litigation and claims, and this and any additional matters that arise could have a material adverse impact on our results of operations and financial condition as well as on our reputation. While we cannot estimate our potential exposure in these matters at this time, we have already incurred significant expense defending this litigation and expect to continue to need to incur significant expense.
Matters relating to or arising from the restatement and the 2019 Investigation, including adverse publicity and potential concerns from our customers could continue to have an adverse effect on our business and financial condition.
We have restated our consolidated financial statements as of and for the fiscal year 2017 and our unaudited consolidated financial statements for the quarterly periods ended September 30, 2016, December 31, 2016, March 31, 2017, September 30, 2017, December 31, 2017, and March 31, 2018. As a result, we have been and could continue to be the subject of negative publicity focusing on the restatement and adjustment of our financial statements, and may be adversely impacted by negative reactions from our customers or others with whom we do business. Concerns include the perception of the effort required to address our accounting and control environment and the ability for us to be a long-term provider to our customers. The continued occurrence of any of the foregoing could harm our business and have an adverse effect on our financial condition. Additionally, as a result of the restatements, we have become subject to a number of additional risks and uncertainties, including substantial unanticipated costs for accounting and legal fees in connection with or related to the restatement. If litigation did occur, we may incur additional substantial defense costs regardless of their outcome. Likewise, such events might cause a diversion of our management’s time and attention. If we do not prevail in any such litigation, we could be required to pay substantial damages or settlement costs.
Matters relating to recent U.S. Department of Justice (“DOJ”) inquiries, initially received in the third quarter of fiscal year 2020 may require significant time and attention, result in substantial expenses and lead to adverse publicity.
In the third quarter of fiscal year 2020, the Company responded to a subpoena received from the DOJ that sought records regarding Company activities related to the 2019 Investigation. We are and have been cooperating fully with the DOJ’s queries. While these inquiries to date relate to events that took place under prior management that was in place during those years, they will likely require time and attention from current management to provide access to any internal company records that may be requested.
We are unable to predict what consequences, if any, that the investigation performed by the DOJ may have on us. The investigation performed by the DOJ could result in substantial legal and accounting expenses, divert management’s attention from other business concerns and harm our business. Any civil or criminal action commenced against us could result in administrative orders against us, the imposition of significant penalties and/or fines against us, and/or the imposition of civil or criminal sanctions against us or certain of our former officers, directors and/or employees. Any regulatory action could result in the filing of additional restatements of our prior financial statements or require that we take other actions. If we are subject to an adverse finding resulting from the investigation performed by the DOJ, we could be required to pay damages or penalties or have other remedies imposed upon us. The period of time necessary to resolve the investigations by the DOJ is uncertain, and these matters could require significant management and financial resources which could otherwise be devoted to the operation of our business. Additionally, as a result of these inquiries, we could be the subject of negative publicity including negative reactions from our customers or others with whom we do business.
We and certain of our former officers and directors could be subject to future claims and lawsuits, which could require significant additional management time and attention, result in significant additional legal expenses or result in government enforcement actions.
We and certain of our former officers and directors may become subject to further litigation, government investigations or proceedings arising from the 2019 Investigation. Future litigation, investigation or other actions that may be filed or initiated against us or our former officers or directors may be time consuming and expensive. We cannot predict what losses we may incur in these litigation matters, and contingencies related to our obligations under the federal and state securities laws, or in other legal proceedings or governmental investigations or proceedings related to these matters.
To date, we have incurred significant costs in connection with litigation, investigations and with the special litigation committee proceedings. Any legal proceedings, if decided adversely to us, could result in significant monetary damages, penalties and reputational harm, and will likely involve significant defense and other costs. We have entered into indemnification agreements with each of our directors and certain of our officers, and our bylaws require us to indemnify each of our directors and officers. Further, our insurance may not cover all claims that have been or may be brought against us, and insurance coverage may not continue to be available to us at a reasonable cost. As a result, we have been and may continue to be exposed to substantial uninsured liabilities, including pursuant to our indemnification obligations, which could materially adversely affect our business, prospects, results of operations and financial condition.
For additional discussion of these matters, refer to Note 17 to our consolidated financial statements.
Failure to maintain effective systems of internal control over financial reporting and disclosure controls and procedures could cause a loss of confidence in our financial reporting and adversely affect the trading price of our common stock.
Effective internal control over financial reporting is necessary for us to provide accurate financial information. Section 404 of the Sarbanes-Oxley Act requires us to evaluate the effectiveness of our internal control over financial reporting as of the end of each fiscal year and to include a management report assessing the effectiveness of our internal control over financial reporting in our Annual Report on Form 10-K. As discussed in Item 9A, our internal controls over financial reporting were not effective as of June 30, 2020 due to the existence of a material weakness in such controls. While no material weaknesses were identified as of June 30, 2021, there can be no assurance that we will not experience additional material weaknesses in the future. If we are unable to adequately maintain our internal control over financial reporting in the future, we may not be able to accurately report our financial results, which could cause investors to lose confidence in our reported financial information, negatively affecting the trading price of our common stock, or our ability to access the capital markets.
Risks related to our common stock
Director and officer liability is limited and shareholders may have limited rights to recover against directors for breach of fiduciary duty.
As permitted by Pennsylvania law, our by-laws limit the liability of our directors for monetary damages for breach of a director’s fiduciary duty except for liability in certain instances. As a result of our by-law provisions and Pennsylvania law, shareholders may have limited rights to recover against directors for breach of fiduciary duty. In addition, our by-laws and indemnification agreements entered into by the Company with each of the officers and directors provide that we shall indemnify our directors and officers to the fullest extent permitted by law.
An active trading market for our common stock may not be maintained.
We can provide no assurance that we will be able to maintain an active trading market for our common stock on the Nasdaq Global Select Market, or any other exchange in the future. If an active market for our common stock is not maintained, or if we fail to satisfy the continued listing standards of Nasdaq for any reason and our securities are delisted, it may be difficult for our security holders to sell their securities without depressing the market price for the securities or at all. An inactive trading market may also impair our ability to both raise capital by selling shares of common stock and complete other acquisitions by using our shares of common stock as consideration.
If securities and/or industry analysts fail to continue publishing research about our business, if they change their recommendations adversely, or if our results of operations do not meet their expectations, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly for any reason, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. In addition, it is likely that, in some future period, our operating results will be below the expectations of securities analysts or investors. If one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, our stock price could decline.
There is a risk that we may be dropped from inclusion in the Russell 2000® Index which could result in a decline in the price of our stock.
Although we are currently included in the Russell 2000® Index, there is a risk that we could be dropped from inclusion when the list of public companies included in the Russell 2000® Index is reconstituted in May 2022 which could result in a decline in demand for our common stock and, accordingly, the trading price of our common stock following such event. For example, the market capitalization cutoff for the Russell 2000® Index could be increased due to recent strong small-cap performance, special purpose acquisition company, or SPAC, activity, strong IPO activity and the depressed mergers and acquisitions environment.
Upon certain fundamental transactions involving the Company, such as a merger or sale of substantially all of our assets, we may be required to distribute the liquidation preference then due to the holders of our Series A Preferred Stock which would reduce the amount of the distributions otherwise to be made to the holders of our common stock in connection with such transactions.
Our articles of incorporation provide that upon a merger or sale of substantially all of our assets or upon the disposition of more than 50% of our voting power, the holders of at least 60% of the preferred stock may elect to have such transaction treated as a liquidation and be entitled to receive their liquidation preference. Upon our liquidation, the holders of our preferred stock are entitled to receive a liquidation preference prior to any distribution to the holders of common stock which, as of June 30, 2021 was approximately $21.4 million.
Item 1B. Unresolved Staff Comments.
Item 2. Properties.
Our headquarters are located at 100 Deerfield Lane, Suite 300, Malvern, Pennsylvania. All of our current locations are leased and expire in varying years outlined below. All of our leased facilities are used for corporate functions, product development, sales, and other purposes. We believe our existing facilities are sufficient for our current and future needs.
|Location||Approximate Monthly Base Rent||Lease Expiration ||Approximate Size|
|Atlanta, Georgia||$6,000||October 2021||4,600 sq. ft. |
|Atlanta, Georgia*||$21,000 - $22,000||June 2023||11,900 sq. ft.|
|Malvern, Pennsylvania||$57,000 - $61,000||November 2023||27,000 sq. ft.|
|Metairie, Louisiana||$15,000 - $16,000||July 2024||7,800 sq. ft.|
|Denver, Colorado||$45,000 - $53,000||December 2026||16,700 sq. ft.|
* Lease commenced in August 2021.
Item 3. Legal Proceedings.
We are a party to litigation and other proceedings that arise in the ordinary course of our business. We establish accruals for those matters in circumstances when a loss contingency is considered probable and the related amount is reasonably estimable. Any such accruals may be adjusted as circumstances change. Assessments of losses are inherently subjective and involve unpredictable factors. It is possible that future results of operations for any particular quarterly or annual period could be materially and adversely affected by any developments relating to the legal proceedings, claims and investigations. See Note 17 to the consolidated financial statements in Part II, Item 8 of this Annual Report for a summary of our litigations and other claims.
Item 4. Mine Safety Disclosures.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is traded on The NASDAQ Global Market under the symbol “CTLP”. As of August 27, 2021, there were 535 holders of record of our common stock and 242 record holders of the preferred stock. This number does not include stockholders for whom shares were held in a “nominee” or “street” name.
The holders of the common stock are entitled to receive such dividends as the Board of Directors of the Company may from time to time declare out of funds legally available for payment of dividends. Through the date hereof, no cash dividends have been declared on the Company’s common stock or preferred stock. No dividend may be paid on the common stock until all accumulated and unpaid dividends on the preferred stock have been paid. As of August 27, 2021, such accumulated unpaid dividends amounted to approximately $17.3 million. The preferred stock is also entitled to a liquidation preference over the common stock which, as of June 30, 2021 equaled approximately $21.4 million.
RECENT SALES OF UNREGISTERED SECURITIES
On February 24, 2021, the Company entered into separate subscription agreements with institutional accredited investors (the “Purchasers”) relating to a private placement (the “Private Placement”) with respect to the sale of an aggregate of 5,730,000 shares of the Company’s common stock. The Private Placement closed on March 4, 2021 and the Company received aggregate gross proceeds of approximately $55 million based on the offering price of $9.60 per share. The Company intends to use the proceeds of the Private Placement for general corporate purposes and working capital to support anticipated growth.
These shares were not registered under the Securities Act of 1933, as amended (the “Securities Act”). The issuances of the securities were undertaken in reliance upon exemptions from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereof to sophisticated and accredited recipients.
Pursuant to the Subscription Agreements, the Company agreed to file a registration statement with the U.S. Securities and Exchange Commission covering the resale of the Shares within 45 days following the date of the Subscription Agreements and to cause the registration statement to become effective within 60 days following the filing deadline. On April 5, 2021, the Company filed the registration statement with the U.S. Securities and Exchange Commission and, on April 14, 2021, the registration statement was declared effective.
The following graph shows a comparison of the 5‑year cumulative total shareholder return for our common stock with The US Small-Cap Russell 2000® Index and the S&P 500 Information Technology Index in the United States. The graph assumes a $100 investment on June 30, 2016 in our common stock and in the Small-Cap Russell 2000® Index and the S&P 500 Information Technology Index, including reinvestment of dividends.
The Company was added as a member of the US Small-Cap Russell 2000® Index in June 2021. We have included the Small-Cap Russell 2000® Index replacing the Nasdaq Composite Index in our cumulative total return comparisons below, which reflects a change from the presentation in prior fiscal years.
COMPARISON OF 5‑YEAR CUMULATIVE TOTAL RETURN
Among Cantaloupe, Inc., The US Small-Cap Russell 2000® Index, and The S&P 500 Information Technology Index
|Total Return For:||Jun-16||Jun-17||Jun-18||Jun-19||Jun-20||Jun-21|
|Cantaloupe, Inc.||$||100 ||$||122 ||$||328 ||$||174 ||$||164 ||$||278 |
|US Small-Cap Russell 2000® Index||$||100 ||$||123 ||$||143 ||$||136 ||$||125 ||$||201 |
|S&P 500 Information Technology Index||$||100 ||$||132 ||$||171 ||$||192 ||$||258 ||$||364 |
The information in the performance graph is not deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934, as amended, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate it by reference into such a filing. The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Item 6. Selected Financial Data.
The information required by Item 301 and Item 302 of Regulation S-K has been omitted as we have elected to early adopt the changes to Item 301 and 302 of Regulation S-K contained in SEC Release No 33-10890.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in this Form 10-K, as well as the discussion under “Item 1A. Risk Factors.” For further discussion of the business, industry, our products and services, competitive strengths, and growth strategy, see “Item 1. Business.” Unless stated otherwise, the comparisons presented in this discussion and analysis refer to the year-over-year comparison of changes in our financial condition and results of operations as of and for the fiscal years ended June 30, 2021 and June 30, 2020. Discussion of fiscal year 2019 items and the year-over year comparison of changes in our financial condition and results of operations as of and for the fiscal years ended June 30, 2020 and June 30, 2019 can be found in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2020, which was previously filed with the SEC on September 11, 2020.
Certain prior period amounts have been reclassified to conform with current year presentation. Additionally, in connection with the preparation of the condensed consolidated financial statements for the three months ended September 30, 2020, December 31, 2020 and March 31, 2021, the Company identified adjustments that related to prior period activity. The Company analyzed the potential impact of the errors in accordance with the appropriate guidance, from both a qualitative and quantitative perspective, and concluded that the errors were not material to the previously issued quarterly or annual financial statements and the correcting adjustments are included within the fiscal year ended June 30, 2021 financial statements.
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements. Furthermore, the period to period comparison of our historical results is not necessarily indicative of the results that may be expected in the future.
OVERVIEW OF THE COMPANY
On March 29, 2021, USA Technologies, Inc. filed Articles of Amendment to its Amended and Restated Articles of Incorporation with the Pennsylvania Department of State to effect a change of the Company’s name from “USA Technologies, Inc.” to “Cantaloupe, Inc.,” effective as of April 15, 2021. On April 19, 2021, the Company’s common stock, no par value per share (the “Common Stock”), began trading on the NASDAQ Global Select Market under the ticker symbol “CTLP” and the Company’s Series A Convertible Preferred Stock, no par value per share, began trading on the OTC Markets’ Pink Open Market under the trading symbol, “CTLPP”.
Cantaloupe, Inc. (“Cantaloupe” or the “Company”) is a digital payments and software services company that provides end-to-end technology solutions for the unattended retail market. We are transforming the unattended retail world by offering a solution for payments processing, as well as one that handles inventory management, pre-kitting, route logistics, warehouse and back-office management. Our enterprise-wide platform is designed to increase consumer engagement and sales revenue through digital payments, digital advertising and customer loyalty programs, while providing retailers with control and visibility over their operations and inventory. As a result, customers ranging from vending machine companies to operators of micro-markets, car wash and electric vehicle charging stations, commercial laundry, kiosks, amusements and more, can run their businesses more proactively, predictably, and competitively.
The Company's fiscal year ends June 30. The Company generates revenue in multiple ways. During the fiscal years ended June 30, 2021 and June 30, 2020, we derived approximately 83% and 82% respectively, of our revenue from recurring license and transaction fees related to our ePort Connect service and approximately 17% and 18%, respectively, of our revenue from equipment sales. Active Devices on our service include point of sale ("POS") electronic payment devices, certified payment software, or the servicing of similar third-party installed POS terminals. Devices utilizing the ePort Connect service are the most significant drivers of the Company’s revenue, particularly the recurring revenue from license and transaction fees. Customers can obtain POS electronic payment devices from us in the following ways:
•Purchasing devices directly from the Company or one of its authorized resellers;
•Financing devices under the Company’s QuickStart Program, which are non-cancellable sixty-month sales-type leases, through an unrelated equipment financing company, if available, or directly from the Company; and
•Renting devices under the Company’s JumpStart Program, which are cancellable month-to-month operating leases.
Highlights of the Company for the fiscal year ended June 30, 2021 are below:
•As of June 30, 2021, we had approximately 19,800 Active Customers and 1.1 million Active Devices (as defined in Item 1. Business) connected to our service;
•Three direct sales teams at the national, regional, and local customer-level and a growing number of original equipment manufacturers and national distribution partners;
•Entered into a new Credit Agreement with JP Morgan Chase Bank, N.A in August 2020 that provides for a $5 million secured revolving credit facility and a $15 million secured term facility. The new facility replaces the Company's previous debt facility, which it entered into on October 9, 2019;
•Relisting of the Company on Nasdaq in November 2020;
•Added as a member of the US Small-Cap Russell 2000® Index in June 2021;
•Raised $55 million of aggregate gross proceeds from institutional accredited investors through the sale of our stock in a private placement transaction in March 2021;
•Completion of the rebrand of our Company from USA Technologies, Inc. to Cantaloupe, Inc.;
•Announced a strategic partnership with Castles Technology to introduce a next-generation cashless device solution;
•Formed partnership with Bakkt Holdings, LLC to accept cryptocurrency and accepting participating loyalty points in Cantaloupe’s network;
•Awarded a patent by the United States Patent and Trademark Office (USPTO), titled “Method and System of Personal Vending”;
•Upgraded and expanded the ePort product family to accept EMV contact and contactless payments; and
•Launched next generation of Seed Cashless+.
The coronavirus (COVID-19) was first identified in China in December 2019, and subsequently declared a global pandemic in March 2020 by the World Health Organization. COVID-19 containment measures began in parts of the United States in March 2020 resulting in forced closure of non-essential businesses and social distancing protocols. As a result, COVID-19 has impacted our business, significantly reducing foot traffic to distributed assets containing our electronic payment solutions and reducing discretionary spending by consumers. The Company did not observe meaningful reductions in processing volume until middle of March 2020, when average daily processing volume decreased approximately 40%. By middle of April 2020, processing volumes began to recover and have improved through June 2021. We are now operating at pre-pandemic levels of volumes as businesses, schools and other organizations across the country continue to re-open.
In response to the outbreak and business disruption, first and foremost, we prioritized the health and safety of our employees while continuing to diligently serve our customers. An internal task force was created at the start of the pandemic to develop measures to protect the business in light of the volatility and uncertainty caused by the COVID-19 pandemic. This included such aspects as ensuring the safety of our employees and our community by implementing work from home policies, conserving liquidity, evaluating cost saving actions, partnering with customers to position Cantaloupe for renewed growth post crisis, and temporarily pausing plans for international expansion. The liquidity conservation and cost savings initiatives included: a 20% salary reduction for the senior leadership team through December 2020; deferral of all cash-based director fees until calendar year 2021; a temporary furlough of approximately 10% of our employee base; negotiations with and concessions from vendors in regard to cost reductions and/or payment deferrals; an increased collection effort to reduce outstanding accounts receivables; and various supply chain/inventory improvements. During the summer of 2020 as restrictions lifted, our offices were opened with strict guidelines for social distancing and with adherence to state and local mandates. All of our
furloughed employees returned to work by June 26, 2020. Many of our employees continue to work remotely full-time or part-time throughout fiscal year 2021. To date, our supply chain network has not been significantly disrupted and we are continuously monitoring for the impact from COVID-19. In addition, the Company received loan proceeds from the Paycheck Protection Program in the fourth quarter of fiscal year 2020 and our repayment obligations were forgiven in the fourth quarter of fiscal year 2021. See below for additional information.
While we are encouraged by the recent gradual lifting of pandemic-related closures and other containment measures across the country, we continue to monitor the evolving situation and follow guidance from federal, state and local public health authorities. Given the potential uncertainty of the situation, the Company cannot, at this time, reasonably estimate the longer-term repercussions of COVID-19 on our financial condition, results of operations or cash flows in the future. COVID-19 may have a material adverse impact on our future revenue growth as well as our overall profitability in fiscal year 2022, and may lead to higher sales-related, inventory-related, and operating reserves.
As of June 30, 2021, we have evaluated the potential impact of the COVID-19 outbreak on our financial statements, including, but not limited to, the impairment of goodwill and intangible assets, impairment of long-lived assets including operating lease right-of-use assets, property and equipment and allowance for doubtful accounts for accounts and finance receivables. We have concluded that there are no material impairments as a result of our evaluation. Where applicable, we have incorporated judgments and estimates of the expected impact of COVID-19 in the preparation of the financial statements based on information currently available. These judgments and estimates may change, as new events develop and additional information is obtained, and are recognized in the consolidated financial statements as soon as they become known.
Paycheck Protection Program Loan
In the fourth quarter of fiscal year 2020, we received loan proceeds of approximately $3.1 million (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (the “SBA”). We used the PPP Loan in accordance with the provisions of the CARES Act. The loan bore a fixed interest rate of 1% over a two-year term from the approval date of April 28, 2020. The application for these funds required the Company to, in good faith, certify that the economic uncertainty caused by COVID-19 made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds and the forgiveness of the loan is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on our future adherence to the forgiveness criteria.
On June 8, 2021, the Company received notification from the Small Business Administration that they approved the forgiveness of the full $3.1 million PPP loan and related accrued interest. The Company recorded the forgiveness as a gain on debt extinguishment in Other income in our consolidated financial statements. The SBA reserves the right to audit any PPP loan, regardless of size. These audits may occur after forgiveness has been granted. Under the CARES Act, all borrowers are required to maintain their loan documentation for six years after the PPP loan was forgiven or repaid in full and to provide that documentation to the SBA upon request.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements are prepared applying certain critical accounting policies. The Securities and Exchange Commission (“SEC”) defines “critical accounting policies” as those that require application of management’s most difficult, subjective, or complex judgments. Critical accounting policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variations and may significantly affect our reported results and financial position for the period or in future periods. Changes in underlying factors, assumptions, or estimates in any of these areas could have a material impact on our future financial condition and results of operations. Our financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), and they conform to general practices in our industry. We apply critical accounting policies consistently from period to period and intend that any change in methodology occur in an appropriate manner. Accounting policies currently deemed critical are listed below:
Revenue Recognition. The Company derives revenue primarily from the sale or lease of equipment and services to the small ticket, unattended POS market.
The Company’s application of the accounting principles in U.S. GAAP related to the measurement and recognition of revenue requires us to make judgments and estimates. Complex arrangements may require significant judgment in contract
interpretation to determine the appropriate accounting. Specifically, the determination of whether we are a principal to a transaction (gross revenue) or an agent (net revenue) can require considerable judgment.
The Company enters into arrangements with multiple performance obligations, which may include various combinations of equipment and services. Our equipment and service deliverables qualify as separate performance obligations and can be sold on a standalone basis. A deliverable constitutes a separate unit of accounting when it has standalone value and, where return rights exist, delivery or performance of the undelivered items is considered probable and substantially within the Company’s control. For these multiple deliverable arrangements, the Company allocates revenue to the deliverables based on their relative selling prices. To the extent that a deliverable is subject to specific guidance on whether and/or how to allocate the consideration in a multiple element arrangement, that deliverable is accounted for in accordance with such specific guidance. The Company limits the amount of revenue recognition for delivered items to the amount that is not contingent on the future delivery of products or services or meeting other future performance obligations.
Deferred Income Tax Assets and Liabilities. The carrying values of deferred income tax assets and liabilities reflect the application of our income tax accounting policies in accordance with applicable accounting standards and are based on management’s assumptions and estimates regarding future operating results and levels of taxable income, as well as management’s judgment regarding the interpretation of the provisions of applicable accounting standards. The carrying values of liabilities for income taxes currently payable are based on management’s interpretations of applicable tax laws and incorporate management’s assumptions and judgments regarding the use of tax planning strategies in various taxing jurisdictions.
We evaluate the recoverability of these deferred tax assets by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely heavily on estimates. We use our historical experience and our short and long-term business forecasts to provide insight. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established. As of June 30, 2021 and June 30, 2020, we had federal and state net operating loss carryforwards of $408 million and $403 million, respectively, to offset future taxable income, the majority of which expire through approximately 2039. Federal and some state net operating loss carryforwards generated in tax years ending after December 31, 2017 can be carried forward indefinitely. These federal and state net operating loss carryforwards are reserved with a full valuation allowance because, based on the available evidence, we believe it is more likely than not that we would not be able to utilize those deferred tax assets in the future. If the actual amounts of taxable income differ from our estimates, the amount of our valuation allowance could be materially impacted. Federal operating loss carryforwards start to expire in 2022 and certain state operating loss carryforwards are currently expiring.
Goodwill. We test goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate that impairment may have occurred. Goodwill is reviewed for impairment utilizing either a qualitative or a quantitative goodwill impairment test. If we choose to perform a qualitative assessment and determine the fair value more likely than not exceeds the carrying value, no further evaluation is necessary. When we perform the quantitative goodwill impairment test, we compare the fair value of our reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, then goodwill is not considered impaired. An impairment charge is recognized for the amount by which, if any, the carrying value exceeds the reporting unit’s fair value. However, the loss recognized cannot exceed the reporting unit’s goodwill balance.
The quantitative impairment test process requires valuation of the reporting unit, which we determine using the income approach, the market approach or a combination of the two approaches. Under the income approach, we calculate the fair value of the reporting unit based on the present value of estimated future cash flows derived from assumptions that include expected growth rates and revenues, projected expenses, discount rates, capital expenditures and income tax rates. Under the market approach, we estimate the fair value based on the quoted stock price, recent equity transactions of our business, market transactions involving similar businesses and market comparables.
The Company has selected April 1 as its annual test date. The Company has concluded there has been no impairment of goodwill during the years ended June 30, 2021, 2020, or 2019. As of the date of our annual impairment test for fiscal year 2021, the fair value of our reporting unit exceeded its carrying value by a significant margin. Subsequent to our annual impairment test, no indicators of impairment were identified.
As of June 30, 2021, if our estimate of the fair value of our reporting unit was 10% lower, no goodwill impairment would have existed.
Impairment of Long-Lived Assets. Long-lived assets are reviewed for impairment at the asset group level whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the sum of the expected future undiscounted cash flow is less than the carrying amount of the asset, an impairment is indicated. A loss is then recognized for
the difference, if any, between the fair value of the asset (as estimated by management using its best judgment) and the carrying value of the asset. If actual market value is less favorable than that estimated by management, additional write-downs may be required. For the year ended June 30, 2021, the Company recorded an impairment charge relating to our operating lease right-of-use assets of $1.6 million.
Allowances for Accounts and Finance Receivables. We maintain lifetime expected loss allowances for accounts and finance receivables based on historical experience of payment performance, current conditions of the customer, and reasonable and supportable economic forecasts of collectability for the asset’s entire expected life, which is generally less than one year for accounts receivable and five years for finance receivables. Historical loss experience is utilized as there have been no significant changes in the mix or risk characteristics of the receivable revenue streams used to calculate historical loss rates. Current conditions are analyzed at each measurement date to reassess whether our receivables continue to exhibit similar risk characteristics as the prior measurement date, and determine if the reserve calculation needs to be adjusted for new developments, such as a customer’s inability to meet its financial obligations. Reasonable and supportable macroeconomic trends also are incorporated into the analysis. Estimating the allowances therefore requires us to apply judgment in relying on historical customer payment experience, regularly analyzing the financial condition of our customers, and developing macroeconomic forecasts to adequately cover expected credit losses on our receivables. By nature, such estimates are highly subjective, and it is possible that the amount of receivables that we are unable to collect may be different than the amounts initially estimated in the allowances. Our allowance for doubtful accounts for accounts and finance receivables on June 30, 2021 and 2020 was $7.7 million and $7.8 million, respectively.
Inventories. We determine the value of inventories using the lower of cost or net realizable value. We write down inventories for the difference between the carrying value of the inventories and their net realizable value. If actual market conditions are less favorable than those projected by management, additional write-downs may be required.
We estimate our reserves for inventory obsolescence by continuously examining our inventories to determine if there are indicators that carrying values exceed net realizable values. Experience has shown that significant indicators that could require the need for additional inventory write-downs are the age of the inventory, the length of its product life cycles, anticipated demand for our products, changes to technical standards required by payment companies or by law, and current economic conditions. While we believe that adequate write-downs for inventory obsolescence have been made in the consolidated financial statements, actual demand could be less than forecasted demand for our products and we could experience additional inventory write-downs in the future. Our inventory reserve on June 30, 2021 and 2020 was $3.5 million and $2.8 million, respectively.
Loss Contingencies. Loss contingencies are uncertain and unresolved matters that arise in the ordinary course of business and result from events or actions by others that have the potential to result in a future loss. Such contingencies include, but are not limited to, litigation.
When a loss is considered probable and reasonably estimable, we record a liability in the amount of our best estimate for the ultimate loss. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the low-end of such range. However, the likelihood of a loss with respect to a particular contingency is often difficult to predict and determining a meaningful estimate of the loss or a range of loss may not be practicable based on the information available and the potential effect of future events and decisions by third parties that will determine the ultimate resolution of the contingency. Moreover, it is not uncommon for such matters to be resolved over many years, during which time relevant developments and new information must be continuously evaluated to determine both the likelihood of potential loss and whether it is possible to reasonably estimate a range of possible loss.
Disclosure is provided for material loss contingencies when a loss is probable but a reasonable estimate cannot be made, and when it is reasonably possible that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the recorded provision. We regularly review all contingencies to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made. As discussed above, development of a meaningful estimate of loss or a range of potential loss is complex when the outcome is directly dependent on negotiations with or decisions by third parties, such as regulatory agencies, the court system and other interested parties. Such factors bear directly on whether it is possible to reasonably estimate a range of potential loss and boundaries of high and low estimates.
Sales tax reserve. The Company has recorded a contingent liability for sales tax, included in accrued expenses in the consolidated balance sheet. On a quarterly basis, the Company accrues interest on the unpaid balance. The estimated liability is adjusted upon the payment of sales tax related to the accrual, the changes in state tax laws that may impact the accrual and the expiration of the statute of limitations for open years under review. The liability includes significant judgments and estimates that may change in the future, and the actual liability may be different from our current estimate. Future changes to the sales tax reserve amount will be recorded within selling, general, and administrative expenses in the consolidated statements of operations and accrued expenses in the consolidated balance sheets.
RESULTS OF OPERATIONS
The following table shows certain financial and non-financial data that management believes give readers insight into certain trends and relationships about the Company’s financial performance. We believe the metrics (Active Devices, Active Customers, Total Number of Transactions and Total Dollar Volume of Transactions) are useful in allowing management and readers to evaluate our strategy of driving growth in devices and transactions.
Active Devices are devices that have communicated with us or have had a transaction in the last twelve months. Included in the number of Active Devices are devices that communicate through other devices that communicate or transact with us. A self-service retail location that utilizes an ePort cashless payment device as well as Seed management services constitutes only one device.
The Company defines Active Customers as all customers with at least one active device.
Total Number Of Transactions and Total Dollar Volume of Transactions
Transactions are defined as electronic payment transactions that are processed by our technology-enabled solutions. Management uses Total Number and Dollar Volume of transactions to evaluate the effectiveness of our new customer strategy and ability to leverage existing customers and partners.
|As of and for the years ended|
|June 30, 2021||June 30, 2020||June 30, 2019|
|Active Devices (thousands)||1,094 ||1,079 ||994 |
|Active Customers||19,834 ||17,249 ||15,408 |
|Total Number of Transactions (millions)||868.7 ||881.1 ||847.2 |
|Total Dollar Volume of Transactions (millions)||1,756.6 ||1,729.4 ||1,647.0 |
Highlights for the fiscal year ended June 30, 2021 include:
•1.09 million Active Devices as of June 30, 2021 compared to 1.08 million as of June 30, 2020, an increase of approximately 15 thousand Active Devices, or 1.4%;
•19,834 Active Customers to our service as of June 30, 2021 compared to the same period last year of 17,249, an increase of 2,585 Active Customers, or 15%.
•Volumes for the year ended June 30, 2021 are largely consistent with volumes for the year ended June 30, 2020 as we are now at pre-pandemic (COVID-19) levels of processing volumes as businesses, schools and other organizations across the country continue to re-open.
The following tables and charts summarize our results of operations and significant changes in our financial performance for the periods presented:
Revenue and Gross Profit
|Year Ended June 30,||Percent Change|
|($ in thousands)||2021||2020||2019||2021 v. 2020||2020 v. 2019|
|License and transaction fees||$||139,242 ||$||133,167 ||$||122,908 ||4.6 ||%||8.3 ||%|
|Equipment sales||27,697 ||29,986 ||21,558 ||(7.6)||%||39.1 ||%|
|Total revenue||166,939 ||163,153 ||144,466 ||2.3 ||%||12.9 ||%|
|Cost of sales:|
|Cost of license and transaction fees||83,617 ||82,980 ||79,980 ||0.8 ||%||3.8 ||%|
|Cost of equipment sales||29,296 ||33,900 ||24,301 ||(13.6)||%||39.5 ||%|
|Total cost of sales||112,913 ||116,880 ||104,281 ||(3.4)||%||12.1 ||%|
|License and transaction fees||55,625 ||50,187 ||42,928 ||10.8 ||%||16.9 ||%|
|Equipment sales||(1,599)||(3,914)||(2,743)||59.1 ||%||(42.7)||%|
|Total gross profit||$||54,026 ||$||46,273 ||$||40,185 ||16.8 ||%||15.1 ||%|
|License and transaction fees||39.9 ||%||37.7 ||%||34.9 ||%|
|Total gross margin||32.4 ||%||28.4 ||%||27.8 ||%|
Total revenue for the year ended June 30, 2021 was $166.9 million, consisting of $139.2 million of license and transactions fees and $27.7 million of equipment sales, compared to $163.2 million for the year ended June 30, 2020, consisting of $133.2 million of license and transaction fees and $30 million of equipment sales. The $3.7 million increase in total revenue from the prior fiscal year was attributable to a $6.0 million increase in license and transaction fees offset by a $2.3 million decrease in equipment sales. The increase in license and transaction fees revenues is driven primarily by an increase in our processing volumes in the second half of fiscal year 2021 as we now operating at pre-pandemic (COVID-19) levels of volumes as businesses, schools and other organizations across the county continue to re-open, a higher transaction fee rate on processing volumes and a slight increase in the Active Devices count compared to the same period last year. The decrease in equipment sales is driven primarily by lower shipments compared to last year due to a large equipment sale made to a strategic customer during the fiscal year 2020.
Cost of sales
Despite an increase in revenues for the year ended June 30, 2021 compared to June 30, 2020, total cost of sales were lower in the current fiscal year. Total cost of sales for the year ended June 30, 2021 was $112.9 million, consisting of $83.6 million of cost of license and transaction fees and $29.3 million of cost of equipment sales, compared to $116.9 million for the year ended June 30, 2020, consisting of $83.0 million of cost of license and transaction fees and $33.9 million of cost of equipment sales. The $4.0 million decrease in total cost of sales from the prior fiscal year was attributable to a $4.6 million decrease in cost of equipment sales driven primarily by lower shipments, a large equipment sale made to a strategic customer at a significantly discounted price and operational improvements compared to last year offset by a $0.6 million increase in cost of services. The cost of license and transaction fees went up proportionately less than the increase in license and transaction fees revenues driven primarily by a $1.1 million reduction in network service fees for the year ended June 30, 2021 compared to June 30, 2020.
Overall gross margin increased from 28.4% for fiscal year 2020 to 32.4% for fiscal year 2021. The increase is attributable to an increase in the license and transaction fee margin from 37.7% for fiscal year 2020 to 39.9% for fiscal year 2021 driven primarily by $1.1 million in lower network service fees and a reduction in negative equipment margin from (13.1)% for fiscal year 2020 to (5.8)% for fiscal year 2021 driven primarily by a large equipment sale made to a strategic customer during the fiscal year 2020 and operational improvements.
|Year ended June 30,||Percent Change|
|Category ($ in thousands)||2021||2020||2019||2021 v. 2020||2020 v. 2019|
|Selling, general and administrative expenses||$||58,624 ||$||61,748 ||$||46,527 ||(5.1 ||%)||32.7 ||%|
|Investigation, proxy solicitation and restatement expenses||— ||19,810 ||16,073 ||(100.0 ||%)||23.3 ||%|
|Integration and acquisition costs||— ||— ||1,338 ||NM||(100.0 ||%)|
|Depreciation and amortization||4,107 ||4,307 ||4,430 ||(4.6 ||%)||(2.8 ||%)|
|Total operating expenses||$||62,731 ||$||85,865 ||$||68,368 ||(26.9 ||%)||25.6 ||%|
NM — not meaningful
Selling, general and administrative expenses
Selling, general and administrative expenses for the year ended June 30, 2021 were $58.6 million, compared to $61.7 million for the year ended June 30, 2020. Year over year decreases include a $3.3 million decrease in professional fees due to reduced reliance on external consultants who supported the Company’s accounting and financial reporting operations, a $1.3 million reduction in travel and entertainment expenses due to COVID-19, and a $5.8 million decrease in sales and use tax expense due to a benefit in the current year from recent state sales tax legislation as compared to an expense in the prior year. Offsetting these decreases were a $6.0 million increase in stock-based compensation expense due to the hiring of our new executive leadership team who were brought in to make needed improvements with the Company's strategy and operations and the recently appointed board of directors and a $1.6 million lease impairment charge due to the Company further rationalizing its location strategy. The Company intends to use the savings from the reduced reliance on third party consultants to invest in innovative technologies and to further strengthen our network environment and platform.
Investigation, proxy solicitation and restatement expenses
The Company did not incur Investigation, proxy solicitation and restatement expenses for the year ended June 30, 2021.
In fiscal year 2019, the Audit Committee, with the assistance of independent legal and forensic accounting advisors, conducted an internal investigation of then-current and prior period matters relating to certain of the Company’s contractual arrangements, including the accounting treatment, financial reporting and internal controls related to such arrangements (the “2019 Investigation”). Additionally, in fiscal year 2019, significant financial reporting issues were identified which were unrelated to the internal investigation and which resulted in further adjustments to the Company’s previously issued or prior fiscal years’ unissued financial statements. As a result of the findings, the Company restated its consolidated financial statements as of and for the fiscal year 2017 and our unaudited consolidated financial statements for the quarterly periods ended September 30, 2016, December 31, 2016, March 31, 2017, September 30, 2017, December 31, 2017, and March 31, 2018.
Investigation, proxy solicitation and restatement expenses were incurred both in fiscal years 2020 and 2019 in connection with the 2019 Investigation and the restatements of previously filed financial statements, bank consents, the remediation of deficiencies in our internal control over financial reporting, the proxy solicitation, and professional services fees to assist with accounting and compliance activities in fiscal year 2020 following the filing of the 2019 Form 10-K.
Integration and acquisition costs
The Company did not incur integration and acquisition costs for the fiscal years ended June 30, 2021 and June 30, 2020.
Depreciation and amortization
Depreciation and amortization expense was consistent for the fiscal years ended June 30, 2021 and June 30, 2020.
Other income (expense), Net
|Year ended June 30,||Percent Change|
|Category ($ in thousands)||2021||2020||2019||2021 v. 2020||2020 v. 2019|
|Other income (expense):|
|Interest income||$||1,159 ||$||1,595 ||$||1,555 ||(27.3 ||%)||2.6 ||%|
|Interest expense||$||(4,013)||$||(2,597)||$||(2,992)||54.5 ||%||(13.2 ||%)|
|Other income||3,224 ||— ||— ||100.0 ||%||NM|
|Total other income (expense), net||$||370 ||$||(1,002)||$||(1,437)||(136.9 ||%)||(30.3 ||%)|
NM — not meaningful
Other income (expense), Net
Total other income (expense), net for the fiscal year ended June 30, 2021 was $0.4 million, compared to $(1) million for the fiscal year ended June 30, 2020. The $1.4 million increase in Other income (expense), net from the prior fiscal year was primarily attributable to a $3.2 million increase in Other income related primarily to the forgiveness of our PPP loan offset by a $1.4 million increase in Interest expense.
In the fourth quarter of fiscal year 2021, the Company received notification from the Small Business Administration that our $3.1 million PPP loan and related accrued interest were forgiven in full. The Company recorded the forgiveness as a gain on debt extinguishment in our consolidated financial statements resulting in the increase in Other Income for the fiscal year ended June 30, 2021. See Paycheck Protection Program Loan section above for details.
The increase in Interest expense for the fiscal year ended June 30, 2021 was primarily related to the recognition of the remaining balance of unamortized debt issuance costs and debt discount related to the senior secured term loan facility with Antara Capital Master Fund LP of $2.6 million into interest expense, related to the repayment of all amounts outstanding under the 2020 Antara Term Facility.
Non-GAAP Financial Measures - Adjusted EBITDA
Adjusted earnings before income taxes, depreciation, and amortization (“Adjusted EBITDA”) is a non-GAAP financial measure which is not required by or defined under GAAP. We use this non-GAAP financial measure for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons. We believe that this non-GAAP financial measure provides useful information about our operating results, enhances the overall understanding of past financial performance and future prospects and allows for greater transparency with respect to metrics used by our management in its financial and operational decision making. The presentation of this financial measure is not intended to be considered in isolation or as a substitute for the financial measures prepared and presented in accordance with GAAP, including our net income or net loss or net cash used in operating activities. Management recognizes that non-GAAP financial measures have limitations in that they do not reflect all of the items associated with our net income or net loss as determined in accordance with GAAP, and are not a substitute for or a measure of our profitability or net earnings. Adjusted EBITDA is presented because we believe it is useful to investors as a measure of comparative operating performance. Additionally, we utilize Adjusted EBITDA as a metric in our executive officer and management incentive compensation plans.
We define Adjusted EBITDA as U.S. GAAP net loss before (i) interest income (ii) interest expense on debt and reserves (iii) income tax expense (iv) depreciation (v) amortization (vi) stock-based compensation expense (vii) non-recurring fees and charges that were incurred in connection with the 2019 Investigation and financial statement restatement activities as well as proxy solicitation costs and (viii) certain other significant infrequent or unusual losses and gains that are not indicative of our core operations.
Below is a reconciliation of U.S. GAAP net loss to Adjusted EBITDA for the fiscal years ended June 30, 2021, 2020, and 2019:
|Year ended June 30,|
|($ in thousands)||2021||2020||2019|
|Less: interest income||(1,159)||(1,595)||(1,555)|
|Plus: interest expense||4,013 ||2,597 ||2,992 |
|Plus: income tax provision||370 ||1 ||262 |
|Plus: depreciation expense included in cost of sales for rentals||1,404||2,711||3,074|
|Plus: depreciation and amortization expense in operating expenses||4,107 ||4,307 ||4,430 |
Plus: stock-based compensation (a)
|9,075 ||3,029 ||1,750 |
Plus: investigation, proxy solicitation and restatement expenses (b)
|— ||19,810 ||16,073 |
Plus: asset impairment charge (c)
|1,578 ||— ||— |
Less: gain on extinguishment of debt (d)
|(3,065)||— ||— |
Plus: integration and acquisition costs (e)
|— ||— ||1,338 |
|Adjustments to EBITDA||7,588 ||22,839 ||19,161 |
|Adjusted EBITDA||$||7,618 ||$||(9,735)||$||(1,518)|
(a) As an adjustment to EBITDA, we have excluded stock-based compensation, as it does not reflect our cash-based operations.
(b) As an adjustment to EBITDA, we have excluded the professional fees incurred in connection with the non-recurring costs and expenses related to the 2019 Investigation, financial statement restatement activities, and proxy solicitation costs because we believe that they represent charges that are not related to our core operations.
(c) As an adjustment to EBITDA, we have excluded the non-cash impairment charges related to long-lived operating lease right-of-use assets because we believe that these do not represent charges that are related to our core operations.
(d) As an adjustment to EBITDA, we have excluded the one-time gain related to the forgiveness of our PPP loan.
(e) As an adjustment to EBITDA, we have excluded the non-recurring costs and expenses incurred in connection with business acquisitions in order to allow more accurate comparison of the financial results to historical operations.
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
Historically, we have financed our operations primarily through cash from operating activities, debt financings, and equity issuances. The Company has the following primary sources of capital available: (1) cash and cash equivalents on hand of $88.1 million as of June 30, 2021; (2) the cash that may be provided by operating activities; and (3) up to $5 million available to be drawn on the 2021 JPMorgan Revolving Facility (as defined below in Item 7A). In addition, management continues to implement efficiencies in working capital that are designed to increase our cash balances.
On February 24, 2021, the Company entered into separate subscription agreements in identical form and substance (the “Subscription Agreements”) with institutional accredited investors (the “Purchasers”) relating to a private placement (the “Private Placement”) with respect to the sale of an aggregate of 5,730,000 shares of the Company’s common stock. The Private Placement closed on March 4, 2021 and the Company received aggregate gross proceeds of approximately $55 million based on the offering price of $9.60 per share (the “Purchase Price”). The Company incurred $2.6 million in direct and incremental issuance costs relating to the Private Placement that were accounted as a reduction in the proceeds of the stock.
During the year ended June 30, 2021, the Company entered into the 2021 JPMorgan Credit Agreement (as defined below in Item 7A) and repaid all amounts outstanding under the 2020 Antara Term Facility. The Company also paid $1.2 million to Antara for the commitment termination fee and prepayment premium, and paid $2.6 million towards the settlement of a consolidated shareholder class action lawsuit. For additional discussion on the litigation, see Note 17 to our Consolidated Financial Statements.
In the fourth quarter of fiscal year 2020, we received loan proceeds of approximately $3.1 million (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (the “SBA”). On June 8, 2021, the SBA notified the Company of the forgiveness of the PPP Loan which covers the principal and related accrued interest. The SBA reserves the right to audit any PPP loan, regardless of size. These audits may occur after forgiveness has been granted. Under the CARES Act, all borrowers are required to maintain their loan documentation for six years after the PPP loan was forgiven or repaid in full and to provide that documentation to the SBA upon request.
The Company also has estimated and recorded for potential sales tax and related interest and penalty liabilities of $17.1 million in the aggregate as of June 30, 2021. The Company continues to evaluate these liabilities and the amount and timing of any such payments.
The Company believes that its current financial resources will be sufficient to fund its current twelve-month operating budget from the date of issuance of these condensed consolidated financial statements.
Below are charts that reflect our cash liquidity and outstanding debt for the years ended June 30, 2021, 2020, and 2019.
See Consolidated Statement of Cash Flows in Item 8 of this Annual Report for details on the changes in cash and cash equivalents classified by operating, investing and financing activities during our respective reporting periods.
Net cash provided by (used in) operating activities
Cash provided by operating activities was $8.2 million for the year ended June 30, 2021 compared to cash used in operating activities of $14.1 million for the year ended June 30, 2020. The $8.2 million cash provided by operating activities reflects our net loss of $8.7 million, $3.6 million utilized by changes in working capital accounts offset by $20.5 million in non-cash operating charges.
Cash utilized by working capital accounts of approximately $3.6 million was principally a function of a $10.1 million increase in accounts receivable driven by increased equipment sales and processing volumes in the fourth quarter of fiscal year 2021 offset by $7 million increase in accounts payable and accrued expenses which was comprised of funds owed to customers as a result of larger processing volumes in the fourth quarter of fiscal year 2021 and a reduction in the legal reserve due to the settlement of the shareholder class action lawsuit in fiscal year 2021.
Non-cash operating charges primarily consisted of stock-based compensation, depreciation of property and equipment, amortization of our intangible assets, amortization of debt discounts and asset impairment charges offset by a gain recognized on the extinguishment of our PPP loan.
Net cash used in investing activities
Cash used in investing activities was $1.8 million for the year ended June 30, 2021 compared to cash used of $2.5 million in the same period in the prior year.
Net cash provided by financing activities
Cash provided by financing activities was $50.1 million for the year ended June 30, 2021 compared to cash provided of $20.9 million in the prior year. During the current fiscal year, the Company raised $52.4 million of proceeds (net of issuance costs) through a private placement transaction with respect to the sale of an aggregate of 5,730,000 shares of the Company’s common stock to accredited investors (described below). The Company paid $1.2 million as a prepayment penalty and commitment termination fee to Antara as part of the repayment of the 2020 Antara Term Facility and paid $0.5 million of debt issuance costs as a result of entering into the 2021 JPMorgan Credit Facility (described below in Item 7A).
As of June 30, 2021, the Company had certain contractual obligations due over a period of time as summarized in the following table:
|Payments Due by Fiscal Year|
|($ in thousands)||Total||Less than 1 year||1-3 years||3-5 years||More than 5 years|
Debt and financing obligations (a)
|$||16,005 ||$||829 ||$||15,136 ||$||40 ||$||— |
Operating lease obligations (b)
|5,581 ||1,460 ||2,521 ||1,335 ||265|
Purchase obligations (c)
|27,750 ||6,938 ||20,812 ||— ||— |
|Total contractual obligations||$||49,336 ||$||9,227 ||$||38,469 ||$||1,375 ||$||265 |
(a) Our debt and financing obligations include both principal and interest obligations. As of June 30, 2021, an interest rate of 5% was used to compute the amount of the contractual obligations for interest on the 2021 JPMorgan Credit Agreement. See Note 10 to the consolidated financial statements for further information.
(b) Operating lease obligations represent our undiscounted operating lease liabilities as of June 30, 2021. See Note 3 to the consolidated financial statements for further information.
(c) Purchase obligations primarily represent firm commitments to purchase inventory. See Note 17 to the consolidated financial statements for further information.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
As of June 30, 2021 we are exposed to market risk related to changes in interest rates on our outstanding borrowings. On August 14, 2020, the Company repaid all amounts outstanding under the 2020 Antara Term Facility and entered into a credit agreement with JPMorgan Chase Bank, N.A (the “2021 JPMorgan Credit Agreement”) for a $5 million secured revolving credit facility (the “2021 JPMorgan Revolving Facility”) and a $15 million secured term facility (the “2021 JPMorgan Secured Term Facility” and together with the 2021 JPMorgan Revolving Facility, the “2021 JPMorgan Credit Facility”). The 2021 JPMorgan Credit Facility has a three-year maturity, with interest determined, at the Company’s option, on a base rate of LIBOR or Prime Rate plus an applicable spread tied to the Company’s total leverage ratio and having ranges between 2.75% and 3.75% for Prime rate loans and between 3.75% and 4.75% for LIBOR rate loans. Currently our borrowings are subject to a LIBOR based interest rate. An increase of 100 basis points in Prime Rate or LIBOR Rate would not have a material impact on our interest expense or condensed consolidated financial statements.
We are also exposed to market risk related to changes in interest rates on our cash investments. We invest our excess cash in money market funds that we believe are highly liquid and marketable in the short term. These investments earn a floating rate of interest and are not held for trading or other speculative purposes. Consequently, our exposure to market risks for interest rate changes related to our money market funds is not material. Market risks related to fluctuations of foreign currencies are not material and we have no freestanding derivative instruments as of June 30, 2021.
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Cantaloupe, Inc. (the “Company”) as of June 30, 2021 and 2020, the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended June 30, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2021, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of June 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated September 3, 2021 expressed an unqualified opinion thereon.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, effective July 1, 2020, the Company changed its method of accounting for credit losses due to the adoption of Accounting Standards Codification (“ASC”) Topic 326, Financial Instruments - Credit Losses, and effective July 1, 2019, the Company changed its method of accounting for leases due to the adoption of ASC Topic 842, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
As described in Notes 2 and 4 to the consolidated financial statements, the Company had consolidated revenues for the year ended June 30, 2021 of $167 million. The Company recognizes revenue as performance obligations within a contract are satisfied in an amount the Company expects to be entitled in exchange for those goods or services. Complex arrangements may require significant judgment in contract interpretation to determine the appropriate accounting.
We identified revenue recognition as a critical audit matter. Significant judgment is exercised by the Company when determining revenue recognition for customer contracts including i) whether the Company is the principal or an agent to a transaction and ii) the transaction price allocations for contracts with multiple performance obligations. Auditing these elements involved significant auditor judgment due to the nature and extent of audit effort required to address these matters.
The primary procedures we performed to address this critical audit matter included:
•Assessing management’s determination of whether the Company acts as principal or agent for the bundle of services contracted by the customer.
•Testing a sample of revenue contracts to evaluate i) management’s identification of the nature and extent of performance obligations by reading the related contract and evaluating the appropriateness of management’s application of their accounting policies and ii) management’s allocation of the transaction price to the applicable performance obligations.
/s/ BDO USA, LLP
We have served as the Company's auditor since 2019.
September 3, 2021
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Opinion on Internal Control over Financial Reporting
We have audited Cantaloupe, Inc.’s (the “Company’s”) internal control over financial reporting as of June 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of June 30, 2021 and 2020, the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended June 30, 2021, and the related notes (collectively referred to as “the financial statements”) and our report dated September 3, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ BDO USA, LLP
September 3, 2021
Consolidated Balance Sheets
|As of June 30,|
|($ in thousands, except per share data)||2021||2020|
|Cash and cash equivalents||$||88,136 ||$||31,713 |
|Accounts receivable, net||27,470 ||17,273 |
|Finance receivables, net||7,967 ||7,468 |
|Inventory, net||5,292 ||9,128 |
|Prepaid expenses and other current assets||2,414 ||1,782 |
|Total current assets||131,279 ||67,364 |
|Finance receivables due after one year, net||11,632 ||11,213 |
|Property and equipment, net||5,570 ||7,872 |
|Operating lease right-of-use assets||3,049 ||5,603 |
|Intangibles, net||19,992 ||23,033 |
|Goodwill||63,945 ||63,945 |
|Other assets||2,205 ||1,993 |
|Total non-current assets||106,393 ||113,659 |
|Total assets||$||237,672 ||$||181,023 |
|Liabilities, convertible preferred stock and shareholders’ equity|
|Accounts payable||$||36,775 ||$||27,058 |
|Accrued expenses||26,460 ||30,265 |
|Current obligations under long-term debt||675 ||3,328 |
|Deferred revenue||1,763 ||1,698 |
|Total current liabilities||65,673 ||62,349 |
|Deferred income taxes||179 ||137 |
|Long-term debt, less current portion||13,644 ||12,435 |
|Operating lease liabilities, non-current||3,645 ||4,749 |
|Total long-term liabilities||17,468 ||17,321 |
|Total liabilities||$||83,141 ||$||79,670 |
|Commitments and contingencies (Note 17)|
|Convertible preferred stock:|
Series A convertible preferred stock, 900,000 shares authorized, 445,063 issued and outstanding, with liquidation preferences of $21,447 and $20,779 at June 30, 2021 and 2020, respectively
|3,138 ||3,138 |
Preferred stock, no par value, 1,800,000 shares authorized
|— ||— |
Common stock, no par value, 640,000,000 shares authorized, 71,258,047 and 65,196,882 shares issued and outstanding at June 30, 2021 and 2020, respectively
|462,775 ||401,240 |
|Total shareholders’ equity||151,393 ||98,215 |
|Total liabilities, convertible preferred stock and shareholders’ equity||$||237,672 ||$||181,023 |
See accompanying notes to consolidated financial statements.
Consolidated Statements of Operations
|Year ended June 30,|
|($ in thousands, except per share data)||2021||2020||2019|
|License and transaction fees||$||139,242 ||$||133,167 ||$||122,908 |
|Equipment sales||27,697 ||29,986 ||21,558 |
|Total revenues||166,939 ||163,153 ||144,466 |
|Costs of sales:|
|Cost of license and transaction fees||83,617 ||82,980 ||79,980 |
|Cost of equipment sales||29,296 ||33,900 ||24,301 |
|Total costs of sales||112,913 ||116,880 ||104,281 |
|Gross profit||54,026 ||46,273 ||40,185 |
|Selling, general and administrative||58,624 ||61,748 ||46,527 |
|Investigation, proxy solicitation and restatement expenses||— ||19,810 ||16,073 |
|Depreciation and amortization||4,107 ||4,307 ||4,430 |
|Integration and acquisition costs||— ||— ||1,338 |
|Total operating expenses||62,731 ||85,865 ||68,368 |
|Other income (expense):|
|Interest income||1,159 ||1,595 ||1,555 |
|Other income||3,224 ||— ||— |
|Total other income (expense), net||370 ||(1,002)||(1,437)|
|Loss before income taxes||(8,335)||(40,594)||(29,620)|
|Provision for income taxes||(370)||(1)||(262)|
|Net loss applicable to common shares||$||(9,373)||$||(41,263)||$||(30,550)|
|Net loss per common share|
|Basic and diluted||$||(0.14)||$||(0.66)||$||(0.51)|
|Weighted average number of common shares outstanding used to compute net loss per share applicable to common shares|
|Basic and diluted||67,002,438||62,980,193||60,061,243|
See accompanying notes to consolidated financial statements.
Consolidated Statements of Shareholders’ Equity
|($ in thousands, except shares)||Shares||Amount|
|Balance, June 30, 2018||59,998,811 ||$||375,436 ||$||(232,748)||$||142,688 |
|— ||— ||200 ||200 |
|Stock based compensation||20,627 ||1,618 ||— ||1,618 |
|Repurchase of stock option awards||— ||(120)||— ||(120)|
|Retirement of common stock||(10,957)||(81)||— ||(81)|
|Net loss||— ||— ||(29,882)||(29,882)|
|Balance, June 30, 2019||60,008,481 ||$||376,853 ||$||(262,430)||$||114,423 |
|Stock based compensation||752,808 ||3,110 ||— ||3,110 |
Issuance of common stock in relation to private placement, net of offering costs incurred of $1,102
|3,800,000 ||16,777 ||— ||16,777 |
|Issuance of common stock to Hudson Executive Capital LP||635,593 ||4,500 ||— ||4,500 |
|Net loss||— ||— ||(40,595)||(40,595)|
|Balance, June 30, 2020||65,196,882 ||401,240 ||(303,025)||98,215 |
|— ||— ||348 ||348 |
|Stock-based compensation and exercises (net)||319,011 ||9,145 ||— ||9,145 |
Issuance of common stock in relation to private placement, net of offering costs incurred of $2,618
|5,730,000 ||52,390 ||— ||52,390 |
|Exercise of warrants||12,154 ||— ||— ||— |
|Net loss||— ||— ||(8,705)||(8,705)|
|Balance, June 30, 2021||71,258,047 ||462,775 ||(311,382)||151,393 |
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
|Year ended June 30,|
|($ in thousands)||2021||2020||2019|
|Cash flows from operating activities:|
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities:|
|Stock-based compensation||9,075 ||3,029 ||1,750 |
|Amortization of debt issuance costs and discounts||2,735 ||1,283 ||301 |
|Reimbursement of shareholder proxy solicitation costs||— ||4,500 ||— |
|Provision for expected losses||1,236 ||2,958 ||2,534 |
|Provision for inventory reserve||693 ||681 ||3,172 |
|Depreciation and amortization included in operating expenses||4,107 ||4,307 ||4,430 |
|Depreciation included in cost of sales for rental equipment||1,405 ||2,710 ||3,074 |
|Property and equipment write-off ||1,658 ||— ||— |
|Gain on extinguishment of debt||(3,065)||— ||— |
|Operating lease right-of-use asset impairment||1,578 ||— ||— |
|Other||1,104 ||2,103 ||665 |
|Changes in operating assets and liabilities:|
|Accounts receivable||(10,126)||1,818 ||(8,706)|
|Finance receivables||(1,877)||547 ||(669)|
|Inventory||3,142 ||1,463 ||(5,607)|
|Prepaid expenses and other assets||(847)||(563)||(395)|
|Accounts payable and accrued expenses||7,013 ||2,988 ||1,293 |
|Operating lease liabilities||(1,014)||(1,384)||— |
|Deferred revenue||65 ||16 ||(132)|
|Net cash provided by (used in) operating activities||8,177 ||(14,139)||(28,172)|
|Cash flows from investing activities:|
|Purchase of property and equipment||(1,838)||(2,538)||(4,875)|
|Proceeds from sale of property and equipment||10 ||44 ||116 |
|Net cash provided by (used in) investing activities||(1,828)||(2,494)||(4,759)|
|Cash flows from financing activities:|
|Cash used in retirement of common stock||— ||— ||(81)|
|Proceeds from long-term debt issuance by Antara, net of issuance costs paid to Antara||— ||14,248 ||— |
|Proceeds from equity issuance by Antara, net of issuance costs paid to Antara||— ||17,879 ||— |
|Proceeds from PPP Loan||— ||3,065 ||— |
|Payment of repurchase of common stock awards||— ||— ||(120)|
|Payment of third-party debt issuance costs||— ||(1,980)||(156)|
|Proceeds from long-term debt issuance by JPMorgan Chase Bank, N.A., net of debt issuance costs||14,550 ||— ||— |
|Repayment of long-term debt||(15,744)||(2,522)||(23,254)|
|Proceeds from (repayments of) Revolving Credit Facility||— ||(10,000)||— |
|Proceeds from private placement||55,008 ||— ||— |
|Payment of equity issuance costs||(2,618)||— ||— |
|Payment of Antara prepayment penalty and commitment termination fee||(1,200)||— ||— |
|Proceeds from exercise of common stock options||78 ||192 ||42 |
|Net cash provided by (used in) financing activities||50,074 ||20,882 ||(23,569)|
|Net increase (decrease) in cash and cash equivalents||56,423 ||4,249 ||(56,500)|
|Cash and cash equivalents at beginning of year||31,713 ||27,464 ||83,964 |
|Cash and cash equivalents at end of year||$||88,136 ||$||31,713 ||$||27,464 |
Supplemental disclosures of cash flow information:
|Interest paid in cash||$||1,055 ||$||1,314 ||$||2,793 |
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements