LONG $CTLP - 3Q25 Earnings Update
An Unexpected Bump in the Road; Long-Term Thesis Intact
Cantaloupe, Inc.
NASDAQGS: CTLP | 05/09/2025
CTLP reported 3Q25 results recently—a quarter I’d call a face-value disappointment. Revenue was $75.43M (+11.1% Y/Y), missing consensus by $4.4M, and GAAP EPS was $0.65 (+983.3% Y/Y). GAAP Net Income benefited from a $42.2M valuation-allowance release; ex-this, EPS would have been $0.09 (+52% Y/Y). Transaction-fee growth decelerated to +10% Y/Y versus an avg +17% Y/Y over the last 3 quarters (L3Q), while Subscription-fee growth slowed to +10.3% Y/Y versus an avg +13.2% over the L3Q.
To add to the face-value disappointment, FY25 guidance was revised as follows:
Lowered Total Revenue: $302-$308M (midpoint:+13.5% Y/Y) vs prior $308-$322M (midpoint:+17.3% Y/Y).
Subscription & Transaction Fees: now expected at the low end of the prior +15-20% Y/Y range.
Raised GAAP Net Income: $64-$70M (midpoint:+486.9% Y/Y) vs prior $22-$32M (midpoint:+136.5% Y/Y). Ex the $42.2M valuation allowance, the new midpoint implies +117.2% Y/Y.
Narrowed Adj. EBITDA: $46-$50M (midpoint:+41.3% Y/Y) vs prior $44-$52M.
Reaffirmed Operating Cash Flow: $24-$32M (midpoint:+0.92% Y/Y).
For background, please refer to the previous write-ups:
Drivers behind the miss and tempered guidance
There are 2 culprits behind the miss—issues CTLP fell victim to through no fault of mgmt.’s execution
Adverse weather events - Storms across the Gulf and Deep-South states (Louisiana, Mississippi, Alabama, FL Panhandle, southern Georgia & eastern Texas) in late Jan and mid-Feb hurt transaction fees. Site closures at K-12 & university campuses, hospital cafeterias, manufacturing plants and DCs slashed foot traffic where CTLP’s vending, micro-markets, etc. are installed. Mgmt. pegged the impact at ~$2M, limiting transaction-fee growth to +10% Y/Y ($44.03M); ex-impact, growth would have been +15% Y/Y—still below the ~17% average %Y/Y growth rate of the last 3Q.
Macro-driven equipment sales slowdown - This flowed down to weaker transaction fees from new-equipment startups and to lower subscription fees, as fewer fees were generated under the Cantaloupe One program. Management noted that uncertainty was building up to Liberation Day, then saw a sharp uptick in equipment orders in mid-Apr and May. I imagine this trend has continued as greater tariff clarity reduces the drag.
The Positives
Despite the tempered growth due to unforeseen events, there were several positive aspects exhibiting the resilience of CTLP’s business model and its future growth prospects:
Incremental margins continue to impress - Subscription Gross Margins expanded 100bps Y/Y to 91%. Transaction GM—core to the thesis—rose 200bps Y/Y on better routing and resilient avg-ticket sizes (avg-ticket +6.3% Y/Y despite the ~$2M impact and delayed incremental revenue from pushed-back equipment purchases). Equipment-sales GM jumped 500bps as mgmt. drives toward the 12-15% long-term target. Overall GM improved 267bps Y/Y; these GM gains, combined with disciplined opex control, lifted adj. EBITDA to $13.9M (+36.6% Y/Y) at a 21.35% margin—an impressive 1,911bps expansion.
Cash generation finally turning the page - 3Q25 cash from ops increased $18.6M Q/Q, producing positive FCF. Mgmt. reaffirmed FY25 OCF guidance of $24M-$32M; my base case assumes $30M, implying ~$15M FCF for FY25 if 3Q momentum carries into 4Q.
Another exciting development is the expansion of Engage Pulse card readers, which became commercially available at the start of 3Q. These cashless readers—designed for arcades and amusement venues—remove payment friction, making multiple play rounds easy and driving higher spend. Early feedback is compelling: Lieberman Companies reported that machines equipped with Engage Pulse at one Trampoline Park saw sales +85% Y/Y in the first 2mo, while mall locations saw up to +53% Y/Y. Given these benefits (see prior write-ups for additional detail), adoption should be rapid. CTLP also entered an exclusive partnership with CandyMachines.com, making Engage Pulse a primary cashless provider for its clients. For perspective, ~$4.44-$5.55B (~37%) of the $12-15B U.S. arcade market is still cash-only—a sizeable runway CTLP is well positioned to capture.
Surprisingly, this wasn’t mentioned on the earnings call, but it’s a big deal: via Cheq (acq.2024) CTLP signed an agreement with Carnival Cruise Line (CCL) to be the exclusive POS for all F&B payments on CCL’s new Celebration Key cruise launching Jul’25. Cheq will be the sole way to pay at 30+ bars & restaurants onboard. Celebration Key alone could add $2.5-$5M in incremental annual transaction fees. While this may not move total transaction fees materially, it signals something more important—TAM expansion and flywheel potential. Cruise lines favor unified tech stacks across destinations; if CTLP executes well, the contract could scale fleet-wide and open doors with rival operators (RCL, NCLH), compounding revenue well beyond the initial CCL deal.
Sports & entertainment momentum accelerating - CTLP is winning mid-tier sports venues: 2 independent baseball stadiums have adopted the full POS suite plus suite-management, delivering a unified game-day experience. PayPal Park—home of the MLS San Jose Earthquakes—went live at the start of the MLS 2025 season; strong performance there should position CTLP to bid credibly for 2026 World Cup stadiums, one of the largest sporting stages globally.
Smart Stores emerging as a growth engine - Despite a slower quarter, Smart Store equipment sales generated >$2M. The CEO, calling in from the NAMA conference during the ER call, noted that orders are “taking off” for Q4. Recall that Smart Stores are theft-proof and unlock low-trust venues—transit hubs, hospitals, hotels—whereas micro markets remain a great fit for nonpublic, secure locations where the audience is known and theft risk is controlled. Growth profile is attractive; the CEO noted: “Vending will continue to grow ~5%-6%, micro markets ~30%-40%. Smart Stores and their cousins—smart coolers and other AI-powered, load-cell formats—will grow 100%-200% over the next 2-3yrs and start becoming a big portion of market share.” Micro markets already generate 10x vending sales; Smart Stores are a leg up, with 2x micro-market sales and a better margin profile as higher avg ticket sizes benefit transaction GMs. Mgmt. anticipates Smart Stores will be 20%-30% of new sales in the next 1-1.5yrs.
THE NEGATIVES
Weak international revenue growth - It appears that CTLP is still struggling to find a deployment partner in the LatAm. Mgmt. expects international to account for just 3-4% of total revenue exiting FY25, with a ramp in FY26—below my 5-8% FY25 expectation. I would prefer international expansion to be both a revenue driver and margin-accretive, which will be hard to achieve without large enterprise deals that justify the unit economics of a deployment partner.
Take rates stabilizing – Transaction take rates slipped to 5.17% from 5.27% in L2Q, likely reflecting slower growth in transaction fees and lower transaction dollar volumes (+11.1% Y/Y vs an avg +15% Y/Y over the L3Q). I expect take rates to settle near 5.2% for FY25 and stay flat thereafter. Mgmt. stated in 2Q25 that they’ve “kind of tapped out on increasing the take rate.” Rising avg-ticket size should help keep take rates >5%.
Slower growth in avg-ticket size – Avg-ticket size growth decelerated to +6.3% Y/Y in 3Q25 vs an avg ~+10% Y/Y over the last 3Q, likely due to weather-related closures at high-product value sites. I now forecast +10.5% Y/Y growth for FY25, down from +11%.
M&A rumors not addressed – Mgmt. offered no commentary on acquisition chatter. I assign little weight to a near-term deal given the muted M&A environment, however M&A activity may kick in later in the year as certainty arises.
Updated Valuation Drivers
Revenue Build:
Key changes: a step-down in the number of transactions for FY25 (storm impact, delayed equipment) followed by a step-up in later years as Engage Pulse, Smart Stores, and new verticals scale. A similar step-down appears in avg-ticket size for FY25, with growth resuming as high-ticket Smart Stores and other verticals mix in. I now anticipate transaction take rates to stabilize around 5.2%.
Subscription fees: lower active-device growth and lower subscription fees per device in FY25 for the same reasons above.
Equipment sales: I had modeled a sharper deceleration as buyers shifted to Cantaloupe One, but mgmt. now says enterprises are opting to pay upfront, keeping equipment sales growth sturdier.
I now anticipate CTLP will generate $267.8M (+15.7% Y/Y) in total transaction & subscription fees (low end of mgmt. guidance) and $307.1M (+14.3% Y/Y) total revenue, near the high end of guidance as Smart Store-driven equipment sales rebound in 4Q.
EBITDA Build
Transaction margins continue to be a key EBITDA driver. Key changes here include average ticket sizes and transaction take rates slightly affecting margins. I continue to anticipate management will execute well on this and reach a terminal GM of 36.08%, a fairly conservative assumption at the low end of gross margins observed among payment processing companies (30-60%).
Due to the unexpected events mentioned above, I now anticipate CTLP to generate $49M in adj. EBITDA for FY25 with a solid 15.95% margin. This falls at the high end of management’s guide but should be easily achievable given the strong gross-margin profile. Looking ahead, I anticipate continued EBITDA and margin improvements as management edges closer to its FY26 adj. EBITDA goal of $75M. Strong transaction GMs and recovering equipment-sales GMs should remain as tailwinds. Management is also conservative on opex, evidenced by G&A dropping to 13% of sales in 3Q25 vs 14.4% in 3Q24.
Updated Price Targets
In light of slower revenue growth than expected, marginally lower EBITDA, and lower cash due to the full repayment of the revolver (plus my conservative NWC estimates), I’m adjusting my FY25 price targets under two scenarios.
Assuming the rumored acquisition goes through in 2025, I still think an 18x EBITDA multiple is fair for a business expected to grow EBITDA at an avg 40% per annum over the next 4yrs. CTLP is generating DD revenue growth, operates in an industry with secular upside, is FCF-positive, and maintains a healthy balance sheet—all hallmarks of a strong PE target.
No-acquisition 2025 PT - I think a 15x EBITDA multiple is fair for a business that operates in an economic-slowdown–resilient space and has transaction revenues inflation-indexed should inflation re-emerge. If CTLP is viewed as a defensive play in a lagging equity market for the reasons above, 15x is easily achievable. Macro aside, this is a quality business expanding margins rapidly while profitably growing its TAM—something investors won’t overlook if a solid Q4 print materializes (my base case, with Smart Store growth accelerating).
2026 PT - The longer-term view is much more attractive. Margins are poised to expand further as CTLP penetrates higher-ticket verticals (sports, amusement, Smart Stores). These lift avg-ticket size, benefiting transaction margins (avg-ticket size drives ~85% of the rise in transaction GM). Rapid adoption of Smart Stores and other new equipment should be accretive to subscription revenue under both Cantaloupe ONE and traditional SaaS, each with higher margins. New verticals provide revenue tailwinds, while the vending business offers downside protection in severe macro drawdowns. Combined with solid cash generation next year, CTLP should sustain a 15x EBITDA multiple, implying a 2026 PT of $14.40, +87% upside from current levels.
In a bear-case scenario, if macro pressures hit Smart Store sales or scaling of high-ticket verticals fails—combined with bleak EBITDA performance—I see CTLP generating a tame $46.2M in FY26E EBITDA. At a weak 12x multiple, this implies a bear-case 2026 PT of $6.70, or -13% downside.
In my view, the risk/reward is attractive at current levels, and I will be adding if given the opportunity. At the time of writing, CTLP is 20% of the P14 Capital portfolio and is trading above cost basis.
Disclaimer: Nothing posted by P14 Capital should be considered financial advice. The author of this post holds a long position in CTLP. Please consult a financial advisor and/or conduct your own due diligence before making investment decisions.
All that said...I don't disagree that this company can keep growing. And there's some leverage in the fact that they've finally achieved enough scale to cover their corporate overhead and let more of their operating margin flow all the way to the bottom line. Many companies aren't profitable OR growing, so CTLP is doing better than many!
My major point of skepticism is just that there's a big difference between their core business (acting as value-added resellers for commodity credit-card readers and for commodity payment processing), and their aspirational business (being an innovative tech company in the unattended retail space).
You clearly understand the difference, which is why you acknowledge that their opportunity in arcades is to target the ones who are still cash-only.
But some bulls blur the lines and tell themselves CTLP's core business somehow entitles them to automatically benefit as cashiers are replaced by kiosks. Not realizing that when a retailer or restaurant looks to do that, CTLP tends not to be in the consideration set, or even on the radar screen.
Anyway, sorry for excessive commentary! I'd love any thoughts you have about any of this!
One big driver in your model is a huge increase in average subscription fee per device--from $62 last year to $92 in 2028. That seems very optimistic.
There's one tailwind, which is that they will get higher equipment rental fees (which they include in subscription fees) from their newer expensive hardware offerings.
But there are several headwinds too. First, the installed base of connections is only growing 5%/year in your model. So new sales have a limited impact on the overall average subcription fees per device in the large installed base.
That large installed base has limited ability to absorb price increases. Most of CTLPs 30,000 customers are small, cash-strapped, mom and pop vending machine operators. There are limits to what they need, to what they are willing to pay, and to what they are even ABLE to pay.
And then there are a few other headwinds buried in the details of subscription revenues.
There are really three big subscription revenue categories: a monthly fee that everyone pays to be connected to the transaction processing network, a monthly fee for inventory/route management software that some customers pay, and montly equipment rental fees that some customers pay.
It would tell us a lot if they broke this out. I don't think they are hiding that granularity from competitors, I think they're hiding it from investors.
As one example, they got a big boost from cross-selling the CTLP inventory/route software in to the old USAT customer base, but the two companies merged in 2017 and most of that boost is behind them. The customers in the installed base who want the software already have it. And the new customers with fewer devices per customer are less likely to need it. I don't think management necessarily wants investors to see clearly that the sales of the software (the least commoditized, most proprietary, and highest margin part of the business) have plateaued.
As another example, a lot of subscription revenue comes from equipment rental fees paid for bolt-on credit card readers used to retrofit old machines. New vending machines come with credit-card processing hardware built in (and it's not from CTLP). So that hardware rental fee is a little more rare when customers have more recently manufactured vending machines. And it disappears when CTLP customers upgrade old vending machines with new ones. Both of these dynamics actually DECREASE average subscription revenue per connection.
Given all of the above, doesn't a ~50% increase in average subscription revenue per connection seem overly optimistic?