Marvelous Microcaps

Cantaloupe, Inc. (CTLP)

INTRO:

At Perritt Capital Management, we take focused positions in companies where we have a high conviction in their success; companies that are out of the mainstream of small cap investing. To highlight our process, we are pleased to present the newest installment in our ongoing series “Marvelous Microcaps – Big Ideas on Small Companies.”  This series profiles companies that we believe have a niche in their existing markets or are launching a product that could disrupt their marketplace.

THE COMPANY:

Cantaloupe, Inc. (CTLP) is a digital payment and software service company that provides payment processing and related services to the unattended retail market. The unattended retail market includes retail locations such as vending machines, retail kiosks, amusement & arcade entertainment, and other micro-markets where transaction sizes are small but frequent. In addition to payment processing services, the company provides software and support services including logistical support through inventory and account management, dynamic scheduling for restocking, sales optimization support, and assistance in administering loyalty and reward programs.

With their recent acquisition of Cheq Lifestyle Technologies, the company has also expanded into the sports, festival, and entertainment venue space where they will also offer a comprehensive suite of services like what they do in unattended retail. This is a rapidly growing market and Cantaloupe hopes to leverage their expertise to expand their market penetration in this space. Prior to the acquisition, Cheq already had relationships with several prominent venues including the stadiums for the Washington Commanders NFL team, the Florida Panthers NHL team, the Miami Marlins MLB team, and the Philadelphia Union MLS team.

WHY WE OWN: THE PERRITT ADVANTAGE

We own Cantaloupe because we believe they offer a compelling suite of products to a niche segment of the retail market and demonstrably improve the bottom line for their customers. Based on customer feedback, the addition of a cashless option increases revenues at that machine by 25-35% and using Cantaloupe’s suite of support products can drive operating expenses down by 30-40%. We believe that this dramatic improvement in operating results at the customer level makes for a sticky relationship. Customers that depend on Cantaloupe for their service and support are unlikely to switch to another vendor if that means losing that increased operating leverage.

Their customers are not the only ones realizing better operating leverage. When we first purchased the stock in 2011, the company was generating $23 million a year in revenues and losing money on an annual basis. Today, the company is projecting revenues of $275-285 million and net income of $9-15 million for their fiscal year 2024 ending in June. This would make 2024 the company’s most profitable year on record, and we believe it is a testament to the successes they have had in growing their business and maintaining stable customer relationships.

While it is too early to tell how the addition of Cheq will change the profile of the company, we are excited by this move into an adjacent market and believe it creates an exciting new opportunity for the company to leverage their expertise in the payments space and their experience growing the business on the vending side into a market where they have ample opportunities for growth. In the last decade, Cantaloupe has managed to grow their presence in the vending space to over 1.2 million active connections and has captured much of the low hanging fruit. Having captured almost 30% of their addressable market in that segment, we believe it makes sense for the company to expand into adjacent market verticals where they are less penetrated to open additional revenue streams.