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!
Thanks for the insightful questions/comments--you have raised some great points. I will answer them as time permits.
I do not view their business as “commodity payment processing.” If that were the case, we would see transaction take rates/monetization rates go down, but they have consistently improved since the shift to high-ticket verticals commenced. Unfortunately, many people discount “fintechs” under the misinformed assumption that they are just commodity payment processors. I like investing in fintechs because the business model is scalable: once the platform is running, fixed operating leverage is easier to achieve as more transactions occur and more users join the network, and incremental costs per transaction decrease as transaction $ volume increases. Furthermore, market participants discount the stickiness of the business by overlooking the rising software-attach rates that keep CTLP as the payment processor for the long run.
I’d love to see CTLP evolve into a broader tech play in unattended retail--that would drive higher margins and a richer multiple. This is the long-term thesis, and I think management is pursuing that path as well.
You are spot on about CTLP replacing cashiers completely, that is not even remotely the focus of their business model yet.
Thank you so much for engaging in this discussion. It's all very interesting.
Your analysis is great and so is your writing. All super helpful.
I agree with most of your analysis of the current business. It is much improved over the past 5 years, has turned the corner on profitability, and the stock is now trading at lower multiples of various metrics than it historically has. I also agree that fintech can be attractive, sticky, etc., and CTLP has various tailwinds like making more money as the average ticket price goes up with product shifts and inflation. And I also know that you aren't assuming massive growth in the new verticals in the near term. So I think your analysis is perfectly sound and I wouldn't bet against this stock in the short-term.
But you and most bulls are in part attracted to this business because of the option value that it might "evolve into a broader tech play in unattended retail," which is an exciting and growing area.
I just want to think aloud for a minute and share my worries about this. I think there are a few problems with the hope for CTLP to be a big beneficiary of the growth of unattended retail (beyond the benefits they WILL get from average ticket rates continuing to increase among their existing clients).
1) Slow growth (5%) in traditional vending REQUIRES them to succeed in new markets if they hope to grow connections faster.
And they are starting from a very low base in new markets. So far, they have generated only a very small percentage of revenue outside vending, and not for lack of trying over the years.
So they are almost like a start-up in these new markets. There are a few promising green shoots, but no major revenue yet outside of their traditional customer set.
2) Related is the question of how much their existing business positions them for success in these new markets.
My worry is that their existing customer base and existing technology DON'T give them any big advantages in new markets. Most of their business involves commodity credit card readers for retrofitting old machines, NOT cutting edge new technology that gets incorporated into new vending machines.
3) There are headwinds related to their position as the retrofitter of old machines. Eventually those machines get replaced by new ones that have cashless vending built in. So some of what CTLP provides will no longer be necessary.
A similar dynamic exists in the arcade industry. As you mention, the 1/3 of the industry that is still all cash may be a good opportunity for CTLP. But 20 years from now, a lot of those arcade games will have been replaced by new ones that don't need CTLP. It's hard to imagine the long-term winner being the retrofitter of the least advanced 1/3 of the industry instead of the incumbents already providing payment solutions to the more advanced 2/3 of the industry.
4) CTLP's positioning as a "one-stop-shop" for vending machine operators needing payment solutions makes them seem to many investors like a "pure play" on unattended retail. So people say, hey, here's an "industry leader" in cashless payments for vending; surely they will benefit mightily from the growth of unattended retail.
But here again we have to recognize that CTLP is kind of a value-added reseller of payment processing devices and payment processing services, NOT the indispensible owner of valuable IP. They dominate their niche (mom-and-pop vending machine operators with old machines) partly because it's unattractive to serve (CTLP was the undisputed leader in the space for 15 years without making any money), so the device manufacturers and the various parts of the payment processing value chain were happy to let CTLP orchestrate the services and own the customers.
The biggest vending machine and kiosk manufacturers and the biggest vending machine and kiosk operators with newer machines don't tend to use CTLP for payment processing hardware nor for payment processing itself. That suggests that CTLP might NOT be a big winner as new venues for unattended commerce spring up.
What investors should do instead of just assuming that CTLP's current market position gives it leverage to win in new areas of unattended commerce is look at the whole messy value chain of providers. There are all the big vending machine manufacturers, like Crane, Diebold, etc. There are all the credit card reader manufacturers like Ingenico, Verifone, etc. There are payment platform providers like Square. There are all the pieces in the transaction value chain--credit card companies, processors, transaction routers, etc. Investors need to figure out who among all these players really has leverage, position, indispensibility, defensible IP, etc. etc. rather than just assuming that mere participation in part of an industry gives you a good position to win in new adjacent markets or in the industry itself as it rapidly evolves technologically.
5) All that said, I'm very impressed and surprised that they signed up a cruise ship and the Washington Commanders. I'll be further impressed and surprised if those kind of things go well and they can expand into more ships and sports venues. (If they get a second cruise ship, I think it would be a good buy signal!)
Okay, that's it for my ruminations. I like CTLP as a niche fintech that has finally overcome it's terrible former management and its former lack of profitability. Suddenly even modest growth flows more to the bottom line. And there is a tailwind from higher ticket prices. But I'm skeptical of this stock as a "way to play" the growth and transformation of unattended retail.
If you have any thoughts about any of this I'd love to hear them!
Becoming a full-fledged tech player isn’t core to my thesis; it adds optionality but isn’t baked into my forecast. I’m not married to the stock, nor am I looking 20 years out--I believe it’s futile to predict that far ahead. My horizon is typically 3–5 years, and I’ll sell if the thesis breaks. This is a concentrated position for me (>20% of my portfolio) that I watch closely.
I also don’t view CTLP as winner-takes-all in self-service commerce; as you said there’s a value chain, and rarely does one company capture every $. I’m confident they’ll benefit given their penetration into micro-markets and now into Smart Stores and other high-ticket verticals--this drives more transactions, higher-$ volume, and higher subscription fees as those verticals come with more SaaS modules and bundle higher equipment-rental fees in Cantaloupe ONE (see core thesis and recent CTLP reports).
Yes, slow growth in traditional vending (low-ticket F&B only, not Smart vending with electronic devices, etc.) urges management to look beyond and I see no issue with that. They’ve already seen success in emerging verticals, and their TAM is growing, not shrinking, as more enterprises adopt micro-markets and Smart Stores. Micromarkets alone should account for 10–15% of FY25E revenues, impressive given they began truly expanding into this vertical <2–3 years ago.
On newer machines with built-in cashless: I haven’t seen one. Even if they exist, a card reader is meaningless without a payment processor, and OEMs won’t bake in readers given the extra manufacturing and PCI-compliance costs. I also don’t care if CTLP is seen as a “value-added reseller”-- that label misses the value add which is much greater than the hardware. I think it is unfair to claim that the company has no IP, CTLP holds 140 patents, many covering Seed software, Smart Locks, cooling systems, and other vending technologies.
I’ve also seen the misconception that revenue comes primarily from mom-and-pop customers. Customer count is irrelevant--it’s the active-device distribution and revenue contribution that matter. Enterprises (1,001+ devices) represent ~60% of active devices, mid-market (201–1,000) ~20%, and small biz (<200) ~20%. It’s safe to assume enterprises drive the largest revenue share—likely above 60%—since they occupy high-traffic locations (schools, hospitals, etc.), generate higher transaction fees, and are more likely to add SaaS modules given their scale and unit economics. CTLP will be a winner as these enterprises expand micro-markets and Smart Stores. As noted above, it’s simply not true that the largest operators aren’t using CTLP, since enterprise customers already account for the bulk of revenue.
Investing involves risk--you have to risk it for the biscuit. I view CTLP’s risk/reward as attractive. I’m willing to risk ~25% downside in a bear case for a potential +70% return in my base case (from 05/23 levels). Over the next ~3 years, more things can go right than wrong, in my view.
I hadn't seen that customer segmentation by size before...60% of connections coming from bigger enterprise customers is impressive.
And I think I'm confused about something key. I had always thought that CTLP offered credit card readers moslty for retrofitting old machines and that they weren't usually involved when new machines were being rolled out. But you say, "On newer machines with built-in cashless: I haven’t seen one. Even if they exist, a card reader is meaningless without a payment processor, and OEMs won’t bake in readers given the extra manufacturing and PCI-compliance costs." Okay, that's interesting. I had thought that, say, Crane, was a competitor. But maybe not?
What I'd like to understand better is how things work for vending machine operators who are NOT using CTLP. What do those operators do for credit card reading hardware and for payment processing services? Are they going direct to CTLP's suppliers and partners and orchestrating it themselves? Or are they using companies like CTLP but that are less focused on vending but do retail as well? Like, 10 years ago CTLP was pretty small compared to today, but most vending machines I saw already took credit cards. How did they do it?
It would be interesting to know, for traditional vending machines that do take credit card payments, what % of them use CTLP vs other solutions, either DIY or from competing payment "orchestrators." I realize I have no idea. But it seems like an important question.
Do you have any sense of this? What are the set of alternatives for vending machine payment processing from which CTLP gets selected?
Crane is more of an indirect competitor—they make the card readers but sell them separately, so vending operators using Crane hardware still need to partner with a payment gateway (for example, CTLP or Nayax) to process transactions and handle PCI-compliance. CTLP’s edge is that it offers a true full-stack solution—one agreement covers the reader, payment processing, VMS software, subscriptions, etc.—so from swipe to settlement it’s all bundled.
Aside from CTLP, Nayax is another major player, though they span about 40 verticals (including retail POS and attended kiosks) versus CTLP’s eight self-service categories. CXT is also notable, along with several smaller, niche providers.
As for market share, here’s some back-of-the-envelope math for the US cashless-vending market:
~7 million total vending machines
71% are cashless = ~4.97 million cashless machines
CTLP had ~1.26 million active devices at 3Q25 end
If 90% of those are in vending = ~1.13 million devices
Implied CTLP share = 1.13 M / 4.97 M = ~ 23%
Nayax’s US share is likely smaller, since their 1.33 million devices are spread worldwide and across multiple end markets. Likewise, Crane’s share is also probably lower—CTLP and NYAX's bundled, full-stack offering makes it more attractive—plus Crane doesn’t report a clear install base specifically for cashless vending (though one figure floating around is 700K worldwide.)
I totally agree that CTLP and NYAX are attractive to customers in large part because they offer a one-stop-shop for vending operators.
This great market share info makes me realize that I'm still confused about something...
As impressive as the 23% market share number is, it still leaves a lot of vending machines unaccounted for. If CTLP plus NYAX plus Crane equals 50% of the total cashless machines, how are the other 50% of cashless machines doing it?
I would love to know if you agree with my guess: to me it seems like that some big chunk of the other 50% is taking some kind of DIY approach to orchestrating their payment processing needs. Where the vending operator does for itself some of what CTLP and Nayax do? Maybe buying credit card readers direct from the manufacturers and connecting to payment processing more directly? Or maybe still using a middle man for payment processing, but a less vending-focused middle man (like the ones that serve retail and restaurants)? And I'm wondering if maybe some of the biggest vending operators take this DIY approach?
If true, one cause would just be history and timing--a lot of big vending operators had to figure all this stuff out back when CTLP was small and had a more basic and less complete offering. And some of this could be cost saving--CTLP's margins are expenses to the vending operator. And big operators might not want to pay those margins if they are used to doing it themselves (even though they are incurring employee costs to manage it). And if they are bigger, they might particularly not want or need to pay the extra margins that the cash-strapped customers pay to CTLP for financing or renting hardware.
My sense is that CTLP has been much more focused on signing up new smaller customers adding cashless where they didn't have it before, rather than on trying to win over the biggest DIYers. Which makes sense because as you say, these kinds of solutions are sticky. Even the DIY ones are sticky and it seems like a pain to change them. And the internal employees managing the DIY payment processing stuff would be putting themselves out of a job if they brought in CTLP, so maybe they discourage their bosses from doing it.
This may change at some point due to CTLP's compelling one-stop-shop offering, bigger market position, and better management than in the past. But it seems like up to this point, they've found it an easier sale to "help new customers go cashless" than to try to convince established DIYers to outsource the payments function?
Does that make sense to you? Am I understanding this right? Is "DIY" one of the big competitors?
I'm not sure what the implication is...if anything, it's positive for CTLP because it points to a big category of as yet untapped big potential customers. I'm trying to figure it out just to understand CTLP's competition better.
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?
I'm wondering whether some of the recent growth metrics should be cause for concern:
Overall revenue growth has slowed each year, from 22.9% in FY22 to 18.7% in FY23 to 10.2% in FY24 (and now 12.5% for TTM). And a significant chunk of recent revenue growth has come from inflation in the cost of vending machine snacks rather than from new customer demand for CTLP products and services.
And from FY22 until now, they increased their number of total business customers by 42%, while only increasing the number of connections by 11% and the number of transactions by 9.8%. Yikes. This suggests that they are not attracting big new customers, but are rather working deep in the long tail of small customers. And this also suggests that their historically low churn rates have increased and some devices/connections are dropping off.
What are your thoughts on slowing revenue growth and the disconnect between customer growth and actual connection growth?
FY24 revenues were lower due to the lapping effect of the FY23 equipment upgrade cycle (see core thesis.) One-off events this Q mentioned in the write-up affected the LTM growth. On Active Devices vs Active Customers - not seeing any concrete evidence of churn, ARPU continues to grow well. Company has been onboarding several micro-markets and smart store operators with lesser devices each vs large enterprise vending operators. Those small accounts are sticky once onboarded because the entire cashless/SaaS stack runs through CTLP's Seed Software
Thank you for responding! Your detailed analysis and numbers are very helpful!
The recent onboarding of several micro-market and smart store operators doesn't seem like a sufficient explanation for the striking decline in average customer size.
These guys had to grow their number of business customers by ~50% over the past three years to increase their connections by a mere ~10%. MOST of their new B2B customers in recent years have fewer than 10 connections!
That seems like an issue to me. It seems like they've already captured all the low-hanging fruit in their primary customer segment. And now their sales and operations are increasingly focused on tiny customers and on nascent efforts with new customer segments.
Arguably that's not an ideal situation if you're expecting accelerating growth and expanding margins.
Anyway, your analysis is great. I'm just sharing some worries I have about the company's prospects. I would love any of your thoughts on any of the worries I've raised in this flurry of comments!
To each their own, but I don’t see this as an issue. Traditional vending growth has plateaued at ~5-6% annually (per mgmt). Expanding into new markets typically starts with smaller customers; enterprises follow once adoption is proven. I am also majorly discounting the potential for Active Devices growth in high-ticket verticals like amusement (engage pulse), sports stadiums, and entertainment (cruises, etc.)
One other question for you: shouldn't the attempt to explore strategic alternatives be seen as a bit of a red flag? The business has improved significantly over the past 6 years, but with almost no positive impact on the stock price. Hudson Executive Capital got in at about $7/share, and the stock is now $8 and change 6 years later, representing massive underperformance vs. the market indices.
If Hudson Executive Capital and the Board of Directors and Top Management all shared your enthusiasm and expectation for the company to just start throwing off significant and growing amounts of cash every year, wouldn't this time and price be exactly the wrong time and price to sell out?
And shouldn't the lack of interest from acquirers, even with the stock price at historically low multiples, be another red flag? You yourself admit that a strategic buyer is unlikely. Why would that be if this company is a growing market leader in its niche but still small enough that it's financials would improve significantly if an acquirer could take out duplicative corporate overhead and public listing expenses?
And if the price is low, why are the insiders not buying? If the future was as bright as you claim, shouldn't the guys who paid $7/share for a much smaller and weaker company six years ago, who improved it significantly and deeply understand its prospects, want to buy more at $8/share?
It’s a niche market still in its early innings of growth--beyond traditional vending into Smart Stores, micro-markets, arcades, stadiums, cruises, etc.--so it’s a risky bet for most strategics outside the space. Shift4 could be a fit, but after its Global Blue acquisition I doubt it will rush in; private equity is more likely, though 2025 deal-making has been sluggish. These are just my thoughts, if the rumor of a strategic buyer is true, management surely has some idea who that buyer could be.
I don’t view a strategic review as a red flag. It makes sense when EBITDA has grown at a ~67% CAGR in the L3Y and is projected to grow at a 40%+ CAGR for the next 3Y, the stock trades at ~14x, and FCF is at an inflection point. Launching a review signals management’s belief that the firm is undervalued at current levels and that the market is not awarding CTLP with the appropriate multiple for its profitable growth.
Hudson’s weighted-average price/sh is closer ~$6 rather than $7, so at yesterday’s $8.79 close they are up 40%+, versus ~33% for the IWM over the same span. In my opinion, historical returns are irrelevant when making investment decisions. Hudson has its own motivations, as do other large holders such as Abrams Capital, which kept its stake unchanged last quarter.
I don’t base my thesis on insider buying alone; executives have personal constraints, and a portion of their compensation is paid in stock. Insiders--including Bergeron, the board chair and Hudson co-managing partner--bought shares in the $7s in Sept 2024. More importantly, no executive has been selling.
I'm surprised you are so optimistic about transaction fee gross margins. You show the providers of third party processing and transaction routing agreeing to take a significantly smaller % of each ticket so that CTLP can keep a bigger %. (You show these providers dropping their % of the transaction fees from 29.27% last year to 21.99% a few years from now.) Why would the providers agree to that? They have much more negotiating power than CTLP does.
Are you increasing transaction margins just because you expect CTLP to move toward the higher margins of a broader "payment processor" category? If that was going to happen, wouldn't it have already happened? CTLP is a 33 year old company, and they've already negotiated these transaction costs repeatedly.
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!
Thanks for the insightful questions/comments--you have raised some great points. I will answer them as time permits.
I do not view their business as “commodity payment processing.” If that were the case, we would see transaction take rates/monetization rates go down, but they have consistently improved since the shift to high-ticket verticals commenced. Unfortunately, many people discount “fintechs” under the misinformed assumption that they are just commodity payment processors. I like investing in fintechs because the business model is scalable: once the platform is running, fixed operating leverage is easier to achieve as more transactions occur and more users join the network, and incremental costs per transaction decrease as transaction $ volume increases. Furthermore, market participants discount the stickiness of the business by overlooking the rising software-attach rates that keep CTLP as the payment processor for the long run.
I’d love to see CTLP evolve into a broader tech play in unattended retail--that would drive higher margins and a richer multiple. This is the long-term thesis, and I think management is pursuing that path as well.
You are spot on about CTLP replacing cashiers completely, that is not even remotely the focus of their business model yet.
Thank you so much for engaging in this discussion. It's all very interesting.
Your analysis is great and so is your writing. All super helpful.
I agree with most of your analysis of the current business. It is much improved over the past 5 years, has turned the corner on profitability, and the stock is now trading at lower multiples of various metrics than it historically has. I also agree that fintech can be attractive, sticky, etc., and CTLP has various tailwinds like making more money as the average ticket price goes up with product shifts and inflation. And I also know that you aren't assuming massive growth in the new verticals in the near term. So I think your analysis is perfectly sound and I wouldn't bet against this stock in the short-term.
But you and most bulls are in part attracted to this business because of the option value that it might "evolve into a broader tech play in unattended retail," which is an exciting and growing area.
I just want to think aloud for a minute and share my worries about this. I think there are a few problems with the hope for CTLP to be a big beneficiary of the growth of unattended retail (beyond the benefits they WILL get from average ticket rates continuing to increase among their existing clients).
1) Slow growth (5%) in traditional vending REQUIRES them to succeed in new markets if they hope to grow connections faster.
And they are starting from a very low base in new markets. So far, they have generated only a very small percentage of revenue outside vending, and not for lack of trying over the years.
So they are almost like a start-up in these new markets. There are a few promising green shoots, but no major revenue yet outside of their traditional customer set.
2) Related is the question of how much their existing business positions them for success in these new markets.
My worry is that their existing customer base and existing technology DON'T give them any big advantages in new markets. Most of their business involves commodity credit card readers for retrofitting old machines, NOT cutting edge new technology that gets incorporated into new vending machines.
3) There are headwinds related to their position as the retrofitter of old machines. Eventually those machines get replaced by new ones that have cashless vending built in. So some of what CTLP provides will no longer be necessary.
A similar dynamic exists in the arcade industry. As you mention, the 1/3 of the industry that is still all cash may be a good opportunity for CTLP. But 20 years from now, a lot of those arcade games will have been replaced by new ones that don't need CTLP. It's hard to imagine the long-term winner being the retrofitter of the least advanced 1/3 of the industry instead of the incumbents already providing payment solutions to the more advanced 2/3 of the industry.
4) CTLP's positioning as a "one-stop-shop" for vending machine operators needing payment solutions makes them seem to many investors like a "pure play" on unattended retail. So people say, hey, here's an "industry leader" in cashless payments for vending; surely they will benefit mightily from the growth of unattended retail.
But here again we have to recognize that CTLP is kind of a value-added reseller of payment processing devices and payment processing services, NOT the indispensible owner of valuable IP. They dominate their niche (mom-and-pop vending machine operators with old machines) partly because it's unattractive to serve (CTLP was the undisputed leader in the space for 15 years without making any money), so the device manufacturers and the various parts of the payment processing value chain were happy to let CTLP orchestrate the services and own the customers.
The biggest vending machine and kiosk manufacturers and the biggest vending machine and kiosk operators with newer machines don't tend to use CTLP for payment processing hardware nor for payment processing itself. That suggests that CTLP might NOT be a big winner as new venues for unattended commerce spring up.
What investors should do instead of just assuming that CTLP's current market position gives it leverage to win in new areas of unattended commerce is look at the whole messy value chain of providers. There are all the big vending machine manufacturers, like Crane, Diebold, etc. There are all the credit card reader manufacturers like Ingenico, Verifone, etc. There are payment platform providers like Square. There are all the pieces in the transaction value chain--credit card companies, processors, transaction routers, etc. Investors need to figure out who among all these players really has leverage, position, indispensibility, defensible IP, etc. etc. rather than just assuming that mere participation in part of an industry gives you a good position to win in new adjacent markets or in the industry itself as it rapidly evolves technologically.
5) All that said, I'm very impressed and surprised that they signed up a cruise ship and the Washington Commanders. I'll be further impressed and surprised if those kind of things go well and they can expand into more ships and sports venues. (If they get a second cruise ship, I think it would be a good buy signal!)
Okay, that's it for my ruminations. I like CTLP as a niche fintech that has finally overcome it's terrible former management and its former lack of profitability. Suddenly even modest growth flows more to the bottom line. And there is a tailwind from higher ticket prices. But I'm skeptical of this stock as a "way to play" the growth and transformation of unattended retail.
If you have any thoughts about any of this I'd love to hear them!
Thank you for indulging me!
Becoming a full-fledged tech player isn’t core to my thesis; it adds optionality but isn’t baked into my forecast. I’m not married to the stock, nor am I looking 20 years out--I believe it’s futile to predict that far ahead. My horizon is typically 3–5 years, and I’ll sell if the thesis breaks. This is a concentrated position for me (>20% of my portfolio) that I watch closely.
I also don’t view CTLP as winner-takes-all in self-service commerce; as you said there’s a value chain, and rarely does one company capture every $. I’m confident they’ll benefit given their penetration into micro-markets and now into Smart Stores and other high-ticket verticals--this drives more transactions, higher-$ volume, and higher subscription fees as those verticals come with more SaaS modules and bundle higher equipment-rental fees in Cantaloupe ONE (see core thesis and recent CTLP reports).
Yes, slow growth in traditional vending (low-ticket F&B only, not Smart vending with electronic devices, etc.) urges management to look beyond and I see no issue with that. They’ve already seen success in emerging verticals, and their TAM is growing, not shrinking, as more enterprises adopt micro-markets and Smart Stores. Micromarkets alone should account for 10–15% of FY25E revenues, impressive given they began truly expanding into this vertical <2–3 years ago.
On newer machines with built-in cashless: I haven’t seen one. Even if they exist, a card reader is meaningless without a payment processor, and OEMs won’t bake in readers given the extra manufacturing and PCI-compliance costs. I also don’t care if CTLP is seen as a “value-added reseller”-- that label misses the value add which is much greater than the hardware. I think it is unfair to claim that the company has no IP, CTLP holds 140 patents, many covering Seed software, Smart Locks, cooling systems, and other vending technologies.
I’ve also seen the misconception that revenue comes primarily from mom-and-pop customers. Customer count is irrelevant--it’s the active-device distribution and revenue contribution that matter. Enterprises (1,001+ devices) represent ~60% of active devices, mid-market (201–1,000) ~20%, and small biz (<200) ~20%. It’s safe to assume enterprises drive the largest revenue share—likely above 60%—since they occupy high-traffic locations (schools, hospitals, etc.), generate higher transaction fees, and are more likely to add SaaS modules given their scale and unit economics. CTLP will be a winner as these enterprises expand micro-markets and Smart Stores. As noted above, it’s simply not true that the largest operators aren’t using CTLP, since enterprise customers already account for the bulk of revenue.
Investing involves risk--you have to risk it for the biscuit. I view CTLP’s risk/reward as attractive. I’m willing to risk ~25% downside in a bear case for a potential +70% return in my base case (from 05/23 levels). Over the next ~3 years, more things can go right than wrong, in my view.
All very interesting!
I hadn't seen that customer segmentation by size before...60% of connections coming from bigger enterprise customers is impressive.
And I think I'm confused about something key. I had always thought that CTLP offered credit card readers moslty for retrofitting old machines and that they weren't usually involved when new machines were being rolled out. But you say, "On newer machines with built-in cashless: I haven’t seen one. Even if they exist, a card reader is meaningless without a payment processor, and OEMs won’t bake in readers given the extra manufacturing and PCI-compliance costs." Okay, that's interesting. I had thought that, say, Crane, was a competitor. But maybe not?
What I'd like to understand better is how things work for vending machine operators who are NOT using CTLP. What do those operators do for credit card reading hardware and for payment processing services? Are they going direct to CTLP's suppliers and partners and orchestrating it themselves? Or are they using companies like CTLP but that are less focused on vending but do retail as well? Like, 10 years ago CTLP was pretty small compared to today, but most vending machines I saw already took credit cards. How did they do it?
It would be interesting to know, for traditional vending machines that do take credit card payments, what % of them use CTLP vs other solutions, either DIY or from competing payment "orchestrators." I realize I have no idea. But it seems like an important question.
Do you have any sense of this? What are the set of alternatives for vending machine payment processing from which CTLP gets selected?
Crane is more of an indirect competitor—they make the card readers but sell them separately, so vending operators using Crane hardware still need to partner with a payment gateway (for example, CTLP or Nayax) to process transactions and handle PCI-compliance. CTLP’s edge is that it offers a true full-stack solution—one agreement covers the reader, payment processing, VMS software, subscriptions, etc.—so from swipe to settlement it’s all bundled.
Aside from CTLP, Nayax is another major player, though they span about 40 verticals (including retail POS and attended kiosks) versus CTLP’s eight self-service categories. CXT is also notable, along with several smaller, niche providers.
As for market share, here’s some back-of-the-envelope math for the US cashless-vending market:
~7 million total vending machines
71% are cashless = ~4.97 million cashless machines
CTLP had ~1.26 million active devices at 3Q25 end
If 90% of those are in vending = ~1.13 million devices
Implied CTLP share = 1.13 M / 4.97 M = ~ 23%
Nayax’s US share is likely smaller, since their 1.33 million devices are spread worldwide and across multiple end markets. Likewise, Crane’s share is also probably lower—CTLP and NYAX's bundled, full-stack offering makes it more attractive—plus Crane doesn’t report a clear install base specifically for cashless vending (though one figure floating around is 700K worldwide.)
Amazing info! Thank you so much!
I totally agree that CTLP and NYAX are attractive to customers in large part because they offer a one-stop-shop for vending operators.
This great market share info makes me realize that I'm still confused about something...
As impressive as the 23% market share number is, it still leaves a lot of vending machines unaccounted for. If CTLP plus NYAX plus Crane equals 50% of the total cashless machines, how are the other 50% of cashless machines doing it?
I would love to know if you agree with my guess: to me it seems like that some big chunk of the other 50% is taking some kind of DIY approach to orchestrating their payment processing needs. Where the vending operator does for itself some of what CTLP and Nayax do? Maybe buying credit card readers direct from the manufacturers and connecting to payment processing more directly? Or maybe still using a middle man for payment processing, but a less vending-focused middle man (like the ones that serve retail and restaurants)? And I'm wondering if maybe some of the biggest vending operators take this DIY approach?
If true, one cause would just be history and timing--a lot of big vending operators had to figure all this stuff out back when CTLP was small and had a more basic and less complete offering. And some of this could be cost saving--CTLP's margins are expenses to the vending operator. And big operators might not want to pay those margins if they are used to doing it themselves (even though they are incurring employee costs to manage it). And if they are bigger, they might particularly not want or need to pay the extra margins that the cash-strapped customers pay to CTLP for financing or renting hardware.
My sense is that CTLP has been much more focused on signing up new smaller customers adding cashless where they didn't have it before, rather than on trying to win over the biggest DIYers. Which makes sense because as you say, these kinds of solutions are sticky. Even the DIY ones are sticky and it seems like a pain to change them. And the internal employees managing the DIY payment processing stuff would be putting themselves out of a job if they brought in CTLP, so maybe they discourage their bosses from doing it.
This may change at some point due to CTLP's compelling one-stop-shop offering, bigger market position, and better management than in the past. But it seems like up to this point, they've found it an easier sale to "help new customers go cashless" than to try to convince established DIYers to outsource the payments function?
Does that make sense to you? Am I understanding this right? Is "DIY" one of the big competitors?
I'm not sure what the implication is...if anything, it's positive for CTLP because it points to a big category of as yet untapped big potential customers. I'm trying to figure it out just to understand CTLP's competition better.
I would love any thoughts you have on 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?
I'm wondering whether some of the recent growth metrics should be cause for concern:
Overall revenue growth has slowed each year, from 22.9% in FY22 to 18.7% in FY23 to 10.2% in FY24 (and now 12.5% for TTM). And a significant chunk of recent revenue growth has come from inflation in the cost of vending machine snacks rather than from new customer demand for CTLP products and services.
And from FY22 until now, they increased their number of total business customers by 42%, while only increasing the number of connections by 11% and the number of transactions by 9.8%. Yikes. This suggests that they are not attracting big new customers, but are rather working deep in the long tail of small customers. And this also suggests that their historically low churn rates have increased and some devices/connections are dropping off.
What are your thoughts on slowing revenue growth and the disconnect between customer growth and actual connection growth?
FY24 revenues were lower due to the lapping effect of the FY23 equipment upgrade cycle (see core thesis.) One-off events this Q mentioned in the write-up affected the LTM growth. On Active Devices vs Active Customers - not seeing any concrete evidence of churn, ARPU continues to grow well. Company has been onboarding several micro-markets and smart store operators with lesser devices each vs large enterprise vending operators. Those small accounts are sticky once onboarded because the entire cashless/SaaS stack runs through CTLP's Seed Software
Thank you for responding! Your detailed analysis and numbers are very helpful!
The recent onboarding of several micro-market and smart store operators doesn't seem like a sufficient explanation for the striking decline in average customer size.
These guys had to grow their number of business customers by ~50% over the past three years to increase their connections by a mere ~10%. MOST of their new B2B customers in recent years have fewer than 10 connections!
That seems like an issue to me. It seems like they've already captured all the low-hanging fruit in their primary customer segment. And now their sales and operations are increasingly focused on tiny customers and on nascent efforts with new customer segments.
Arguably that's not an ideal situation if you're expecting accelerating growth and expanding margins.
Anyway, your analysis is great. I'm just sharing some worries I have about the company's prospects. I would love any of your thoughts on any of the worries I've raised in this flurry of comments!
To each their own, but I don’t see this as an issue. Traditional vending growth has plateaued at ~5-6% annually (per mgmt). Expanding into new markets typically starts with smaller customers; enterprises follow once adoption is proven. I am also majorly discounting the potential for Active Devices growth in high-ticket verticals like amusement (engage pulse), sports stadiums, and entertainment (cruises, etc.)
One other question for you: shouldn't the attempt to explore strategic alternatives be seen as a bit of a red flag? The business has improved significantly over the past 6 years, but with almost no positive impact on the stock price. Hudson Executive Capital got in at about $7/share, and the stock is now $8 and change 6 years later, representing massive underperformance vs. the market indices.
If Hudson Executive Capital and the Board of Directors and Top Management all shared your enthusiasm and expectation for the company to just start throwing off significant and growing amounts of cash every year, wouldn't this time and price be exactly the wrong time and price to sell out?
And shouldn't the lack of interest from acquirers, even with the stock price at historically low multiples, be another red flag? You yourself admit that a strategic buyer is unlikely. Why would that be if this company is a growing market leader in its niche but still small enough that it's financials would improve significantly if an acquirer could take out duplicative corporate overhead and public listing expenses?
And if the price is low, why are the insiders not buying? If the future was as bright as you claim, shouldn't the guys who paid $7/share for a much smaller and weaker company six years ago, who improved it significantly and deeply understand its prospects, want to buy more at $8/share?
Any thoughts?
It’s a niche market still in its early innings of growth--beyond traditional vending into Smart Stores, micro-markets, arcades, stadiums, cruises, etc.--so it’s a risky bet for most strategics outside the space. Shift4 could be a fit, but after its Global Blue acquisition I doubt it will rush in; private equity is more likely, though 2025 deal-making has been sluggish. These are just my thoughts, if the rumor of a strategic buyer is true, management surely has some idea who that buyer could be.
I don’t view a strategic review as a red flag. It makes sense when EBITDA has grown at a ~67% CAGR in the L3Y and is projected to grow at a 40%+ CAGR for the next 3Y, the stock trades at ~14x, and FCF is at an inflection point. Launching a review signals management’s belief that the firm is undervalued at current levels and that the market is not awarding CTLP with the appropriate multiple for its profitable growth.
Hudson’s weighted-average price/sh is closer ~$6 rather than $7, so at yesterday’s $8.79 close they are up 40%+, versus ~33% for the IWM over the same span. In my opinion, historical returns are irrelevant when making investment decisions. Hudson has its own motivations, as do other large holders such as Abrams Capital, which kept its stake unchanged last quarter.
I don’t base my thesis on insider buying alone; executives have personal constraints, and a portion of their compensation is paid in stock. Insiders--including Bergeron, the board chair and Hudson co-managing partner--bought shares in the $7s in Sept 2024. More importantly, no executive has been selling.
I'm surprised you are so optimistic about transaction fee gross margins. You show the providers of third party processing and transaction routing agreeing to take a significantly smaller % of each ticket so that CTLP can keep a bigger %. (You show these providers dropping their % of the transaction fees from 29.27% last year to 21.99% a few years from now.) Why would the providers agree to that? They have much more negotiating power than CTLP does.
Are you increasing transaction margins just because you expect CTLP to move toward the higher margins of a broader "payment processor" category? If that was going to happen, wouldn't it have already happened? CTLP is a 33 year old company, and they've already negotiated these transaction costs repeatedly.