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 endedJune 30, 2021 andJune 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 endedJune 30, 2020 andJune 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 endedJune 30, 2020 , which was previously filed with theSEC onSeptember 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 endedSeptember 30, 2020 ,December 31, 2020 andMarch 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 endedJune 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 OnMarch 29, 2021 ,USA Technologies, Inc. filed Articles of Amendment to its Amended and Restated Articles of Incorporation with thePennsylvania Department of State to effect a change of the Company's name from "USA Technologies, Inc. " to "Cantaloupe, Inc. ," effective as ofApril 15, 2021 . OnApril 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 endsJune 30 . The Company generates revenue in multiple ways. During the fiscal years endedJune 30, 2021 andJune 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. 28 --------------------------------------------------------------------------------
Highlights
Highlights of the Company for the fiscal year endedJune 30, 2021 are below: •As ofJune 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 withJP Morgan Chase Bank , N.A inAugust 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 onOctober 9, 2019 ; •Relisting of the Company on Nasdaq inNovember 2020 ; •Added as a member of the US Small-Cap Russell 2000® Index inJune 2021 ; •Raised$55 million of aggregate gross proceeds from institutional accredited investors through the sale of our stock in a private placement transaction inMarch 2021 ; •Completion of the rebrand of our Company fromUSA Technologies, Inc. toCantaloupe, Inc. ; •Announced a strategic partnership with Castles Technology to introduce a next-generation cashless device solution; •Formed partnership withBakkt 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+.
COVID-19 Update
The coronavirus (COVID-19) was first identified inChina inDecember 2019 , and subsequently declared a global pandemic inMarch 2020 by theWorld Health Organization . COVID-19 containment measures began in parts ofthe United States inMarch 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 ofMarch 2020 , when average daily processing volume decreased approximately 40%. By middle ofApril 2020 , processing volumes began to recover and have improved throughJune 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 throughDecember 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 29 -------------------------------------------------------------------------------- furloughed employees returned to work byJune 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 ofJune 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 theU.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 ofApril 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. OnJune 8, 2021 , the Company received notification from theSmall 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 withU.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 inU.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 30 -------------------------------------------------------------------------------- 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 ofJune 30, 2021 andJune 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 afterDecember 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 selectedApril 1 as its annual test date. The Company has concluded there has been no impairment of goodwill during the years endedJune 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 ofJune 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 31 -------------------------------------------------------------------------------- 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 endedJune 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 onJune 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 onJune 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. 32 -------------------------------------------------------------------------------- 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 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.
Active Customers
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 Devices: Active Devices (thousands) 1,094 1,079 994 Customers: Active Customers 19,834 17,249 15,408 Volumes: 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 endedJune 30, 2021 include: •1.09 million Active Devices as ofJune 30, 2021 compared to 1.08 million as ofJune 30, 2020 , an increase of approximately 15 thousand Active Devices, or 1.4%; •19,834 Active Customers to our service as ofJune 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 endedJune 30, 2021 are largely consistent with volumes for the year endedJune 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. 33
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FINANCIAL HIGHLIGHTS The following tables and charts summarize our results of operations and significant changes in our financial performance for the periods presented:
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Revenue and Gross Profit Year Ended June 30, Percent Change ($ in thousands) 2021 2020 2019 2021 v. 2020 2020 v. 2019
Revenue:
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 % Gross profit: 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 % Gross margin: License and transaction fees 39.9 % 37.7 % 34.9 % Equipment sales (5.8) % (13.1) % (12.7) % Total gross margin 32.4 % 28.4 % 27.8 % Revenue Total revenue for the year endedJune 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 endedJune 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 endedJune 30, 2021 compared toJune 30, 2020 , total cost of sales were lower in the current fiscal year. Total cost of sales for the year endedJune 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 endedJune 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 endedJune 30, 2021 compared toJune 30, 2020 . 35 -------------------------------------------------------------------------------- Gross Margin 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$1.1 million in lower network service fees and a reduction in negative equipment margin from (13.1)% for fiscal year 2020 to (5.8)% for fiscal year 2021 driven primarily by a large equipment sale made to a strategic customer during the fiscal year 2020 and operational improvements. Operating Expenses Year ended June 30, Percent Change Category ($ 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 endedJune 30, 2021 were$58.6 million , compared to$61.7 million for the year endedJune 30, 2020 . Year over year decreases include a$3.3 million decrease in professional fees due to reduced reliance on external consultantswho 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 teamwho 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 endedJune 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 endedSeptember 30, 2016 ,December 31, 2016 ,March 31, 2017 ,September 30, 2017 ,December 31, 2017 , andMarch 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 endedJune 30, 2021 andJune 30, 2020 . 36 -------------------------------------------------------------------------------- Depreciation and amortization Depreciation and amortization expense was consistent for the fiscal years endedJune 30, 2021 andJune 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 endedJune 30, 2021 was$0.4 million , compared to$(1) million for the fiscal year endedJune 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 theSmall 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 endedJune 30, 2021 . See Paycheck Protection Program Loan section above for details. The increase in Interest expense for the fiscal year endedJune 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 withAntara 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 asU.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. 37 --------------------------------------------------------------------------------
Below is a reconciliation of
Year ended June 30, ($ in thousands) 2021 2020 2019 Net loss$ (8,705) $ (40,595) $ (29,882) 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 EBITDA 30 (32,574) (20,679) 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. 38
-------------------------------------------------------------------------------- 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 ofJune 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. OnFebruary 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 onMarch 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 endedJune 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 theU.S. Small Business Administration (the "SBA"). OnJune 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 ofJune 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 endedJune 30, 2021 , 2020, and 2019.
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39 -------------------------------------------------------------------------------- Cash Flows 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. [[Image Removed: ctlp-20210630_g10.jpg]] Net cash provided by (used in) operating activities Cash provided by operating activities was$8.2 million for the year endedJune 30, 2021 compared to cash used in operating activities of$14.1 million for the year endedJune 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 endedJune 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 endedJune 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$0.5 million of debt issuance costs as a result of entering into the 2021 JPMorgan Credit Facility (described below in Item 7A). 40 -------------------------------------------------------------------------------- CONTRACTUAL OBLIGATIONS As ofJune 30, 2021 , the Company had certain contractual obligations due over a period of time as summarized in the following table:
Payments Due by Fiscal Year
Less than 1 More than 5 ($ in thousands) Total year 1-3 years 3-5 years years Debt and financing obligations (a)$ 16,005 $ 829
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 ofJune 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 ofJune 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 ofJune 30, 2021 we are exposed to market risk related to changes in interest rates on our outstanding borrowings. OnAugust 14, 2020 , the Company repaid all amounts outstanding under the 2020 Antara Term Facility and entered into a credit agreement withJPMorgan 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 ofJune 30, 2021 . 41
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