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Cantaloupe, Inc. (CTLP)

Q1 2016 Earnings Call· Fri, Nov 13, 2015

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Transcript

Operator

Operator

Good day, ladies and gentlemen and welcome to the USA Technologies’ First Quarter Fiscal 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to Lauren Sloane [ph]. You may begin.

Lauren Sloane

Analyst

Thank you and good morning everyone. This is Lauren Sloane and welcome to the USA Technologies’ first quarter 2016 earnings call. With me on the call this morning is Steve Herbert, Chairman and Chief Executive Officer and Duncan Smith, Chief Financial Officer of USA Technologies. Before we begin today’s call, I would like to remind you that all statements included in the call other than the statements of historical fact are forward-looking statements. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors including, but not limited to business, financial, market and economic conditions. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially of such forward-looking statements is included with our filings with the SEC and in the press release issued yesterday afternoon. Listeners are cautioned not to place undue reliance on any such forward-looking statements, which reflect management’s view only as of the date they are made. USA Technologies undertakes no obligation to update any forward-looking statements as a result of new information, future events or otherwise. This call will also include a discussion of certain non-GAAP financial measures that we believe are useful for understanding USAT operation. These non-GAAP financial measures are supplemental to and not a substitute for GAAP financial measures such as net income or loss or net cash used in operating activities. Details of these items and a reconciliation of these non-GAAP financial measures to GAAP financial measures can be found in our press release issued yesterday afternoon and on the Investor Relations page of our website at www.usatech.com. I would now like to turn the call over to Steve Herbert. Steve?

Steve Herbert

Analyst · Craig-Hallum. Your line is open

Thank you, Lauren and good morning everyone. Thank you for joining us to discuss our first quarter results. USA Technologies had a great start to the year and we believe we are demonstrating increased momentum and execution on our plan to drive non-cash payments into the self-service retail market. We are capitalizing on the cashless payment trends and delivering on our strategic goal of continuing to move our customers towards connecting 100% of their locations. In the quarter, we added 20,000 gross new connections and 16,000 net new connections. Revenue was $16.6 million and we continue to be on track towards achieving our annual guidance and our long-term goals of reaching $100 million in revenue and 0.5 million connections by the end of fiscal 2017. Our revenue grew 35% from a year ago with license and transaction revenue growing nearly 27% and equipment revenue growing 78%. QuickStart, our third-party leasing program, again drove equipment sales. As a reminder, QuickStart allows USA Technologies to record an upfront cash sale of equipment as opposed to JumpStart, where we recognized rental income in the license and transaction line. Further, QuickStart has allowed us to dramatically improve cash flow from operations going from a cash usage from operations of $1.4 million to a cash generation of more than $350,000, a swing of $1.7 million compared with the quarter a year ago. We added 20,000 gross connections and 16,000 net connections in Q1 and total connections to the ePort Connect service now stands at 349,000. This represents growth of 26% from the 276,000 connections we reported in Q1 last year. Connections drive license and transaction revenue, which is the recurring high margin revenue stream for USA Technologies. We added 675 new customers – for 10,275 total customers on our ePort Connect service, a 26% year-over-year…

Duncan Smith

Analyst · Barrington Research. Your line is open

Thank you, Steve. Good morning. I am going to start by reviewing our first quarter results before I review our outlook for fiscal year ‘16. We added 20,000 gross connections in the first quarter compared to 13,000 gross connections in Q1 of last year. Net connections for the quarter totaled 16,000 compared to approximately 10,000 in last year’s first quarter, which represents an increase of 6,000 or 60%. We added 675 new customers ending the quarter with a total of 10,275 customers, a 30% increase in customer count from September quarter of ‘14, which we believe is indicative of a broadened adoption and acceptance of cashless payments in the industries we serve. For the first quarter, total revenue was $16.6 million, an increase of 35% compared to $12.3 million in the first quarter fiscal year ‘15. License and transaction fees were $12.9 million compared to $10.2 million in the year ago quarter, a 27% increase. These fees, which comprised of recurring monthly service fees plus recurring transaction processing fees, accounted for approximately 78% of our total revenue. Growth was driven by a year-over-year increase in total connections to our ePort Connect service, which increased to 349,000 connections, representing a 26% increase from 276,000 in the same quarter last year. Equipment sales were $3.7 million compared to $2.1 million in last year’s first quarter, a 75% increase. The increase is related to our QuickStart program which is having a positive impact on equipment sales and cash flows as we expected. QuickStart and straight sales accounted for approximately 90% of all connections sold during the quarter compared to 70% in the same quarter last year. The company is focusing its direct sales efforts and pricing terms to favor the QuickStart program with 60-month leases and improves the cash – company’s cash flow…

Steve Herbert

Analyst · Craig-Hallum. Your line is open

Thank you very much, Duncan and thank you everyone for joining us this morning. In closing, we had a great start to fiscal 2016. We are committed to accelerating our growth and achieving our long-term goals by leveraging our leadership position and capitalizing on key market trends to drive growth in connections, revenue, profitability and shareholder value as we move forward in fiscal 2016. With that, let us open the call for questions. We would now like to open up the call for questions. Operator?

Operator

Operator

[Operator Instructions] Our first question comes from George Sutton of Craig-Hallum. Your line is open.

George Sutton

Analyst · Craig-Hallum. Your line is open

Thank you, guys. Nice results. So, as we try to breakdown the growth that you have seen and look forward in terms of where the opportunities come from, if we think through you have got QuickStart, you have got the new payment technologies like Apple and Android, you have got the premium service offering, you have now the new or the renewed loyalty effort. As you think forward, how do you see those four breaking down in terms of your total opportunity and what kind of duration would you expect from those opportunities?

Steve Herbert

Analyst · Craig-Hallum. Your line is open

So George just, it’s Steve Herbert. Thank you for the kind words regarding the quarter. Just – I just want to make sure that we understand your question. What you are asking is how do we expect those four key drivers to – by what degree do we expect those four key drivers to drive our business going forward and for how long?

George Sutton

Analyst · Craig-Hallum. Your line is open

Correct.

Steve Herbert

Analyst · Craig-Hallum. Your line is open

Yes. It’s – I am sorry to not answer your question very directly. It’s really hard to tell. The – certainly, a very – what I can say is a very important driver in kind of the near-term the things that we have been seeing over the last couple of quarters. The emergence of mobile as a viable, very visible payment method has seriously gotten the attention of our customer base. I have made a comment in my prepared remarks about falling two payment methods behind, that’s a conversation that we have with our customers now and they are, shall we say moved by it and I don’t mean to be sarcastic. Another key driver and I don’t know the percentages, but another key driver this whole notion of premium services and taking hard data to our customers as a part of that process and really showing them this is what will happen across your entire business. They now have enough of a base where we can extrapolate the numbers across their whole business and they believe it, they believe it more than they did in the past. And that data, combined with the services that we are putting in front of them to implement, is really a powerful one-two punch to motivate them to get them to go. So if I were going to rank one and two, I would rank – those two would be tied for first. How long those things will impact the growth curve, we don’t know, but it’s not a one or two quarter phenomenon. This is something that will affect the business over many quarters. So I hope that gives you enough.

George Sutton

Analyst · Craig-Hallum. Your line is open

Look, I asked a purposely hard question to give you some ability to talk through those items, so that was very helpful. Relative to the Chase relationship, you did get some benefit from the new process relationship, I believe you mentioned there is more to come. I just wanted to make sure we understood how far we are into that benefit. And then Chase themselves has come out with a new payment capability and I wondered how that might influence your opportunity?

Steve Herbert

Analyst · Craig-Hallum. Your line is open

Well, the – I think and Duncan will correct me if I am wrong, I think as we move through this quarter, we should see close to the full impact of the savings that we expected with the movement to Chase. This quarter and certainly as we move into the third quarter, we expect to see the full impact. And with regards to your comment about Chase’s payment method, for those on the call who don’t know, Chase recently – I believe it was at an event called Money 2020 a few weeks ago, a payment trade event, they announced, I believe it’s called Chase Pay or the Chase Wallet. And it’s very similar to something like Apple Pay or Android Pay. And to the extent that it motivates our customers, another fairly serious mobile payment method out there with a global brand, to the extent that it impacts our customers’ decisions to move forward in a more rapid fashion in outfitting their base and connecting it to our service, that’s the best impact that we can hope for in the near-term. We just don’t – we don’t know what the adoption will be of their wallet. That will depend entirely on their marketing effort and their ability to compete with, particularly Apple since they have an uphill battle ahead of them I think, but we will see.

George Sutton

Analyst · Craig-Hallum. Your line is open

Perfect. Thanks for the thoughts guys.

Steve Herbert

Analyst · Craig-Hallum. Your line is open

Thank you.

Operator

Operator

Our next question comes from Gary Prestopino of Barrington Research. Your line is open.

Gary Prestopino

Analyst · Barrington Research. Your line is open

Good morning everyone. A couple of questions here, first of all, with this new professional services offering that you have obviously elevated your SG&A expenses in Q1. And is it safe to assume that throughout the rest of the year, these expenses will be elevated to the point where they were about 29% of sales in this quarter, so that’s the first question?

Duncan Smith

Analyst · Barrington Research. Your line is open

Yes. Good morning, Gary. This is Duncan. As I said in my remarks, over time we expect the SG&A as a percentage of sales to drop, but from quarter-to-quarter, you are going to have a blip up, blip down, different components. But when we are looking at that SG&A cost for that premium service, we are pricing it and we are building it in such that it should generate enough incremental revenue to more than offset the expense. So as a percentage of revenue, it should remain steady or drop going forward relative to that component.

Gary Prestopino

Analyst · Barrington Research. Your line is open

Okay. Thanks. And then you mentioned there was a $300,000 non-recurring item in your license and trans gross margin for transition costs, is that transitioning from one processor to another?

Duncan Smith

Analyst · Barrington Research. Your line is open

Primarily, yes. There is overlap, all this doesn’t happen on one day, so you have trailing transactions and then trailing costs and then you have some ramping up. And then we have also had change in the mix a little bit. I believe the change in debit card has been reintroduced and is a little bit more costly in the mix. But yes, we anticipate – so there are three and there were some cellular costs in there, bringing up a few things. So we anticipate on a go forward that we will see some benefit or more benefit, as Steve said on the payment processing a little bit this quarter but most of it should come in – start coming in next quarter and see the full benefit of the new processor. As far as cellular, cellular prices were always periodically going down, just like your on cellphone, you have to always check your bill. But as we are a large customer of the cellular providers and we are using a lot of data, it gives us some pricing power. So we anticipate being able to bring some dollars to a reduction of SG&A as a percentage going forward on the cellular component. So but yes, I would say there is about 2.5% of 2.5 – 250 basis points of costs in there that I would say in general, shouldn’t reoccur and therefore that should bring that number up to around 35%, give or take a couple of basis points.

Gary Prestopino

Analyst · Barrington Research. Your line is open

Okay. And then just a couple of other real quick ones, it looks like your – by my numbers here, your revenue per transaction was down almost 10%, your volumes per transaction were up about 0.5%, is that just a function of mix from different card payment types that your revenue per transaction has went down year-over-year?

Duncan Smith

Analyst · Barrington Research. Your line is open

Well, I have to take a harder look at that, but there has been definitely a change in the mix of the cards. I mentioned Visa debit, which carries a higher cost and that mix is going up quite significantly. I think for a while there, I don’t think we were accepting or it wasn’t being accepted by our service.

Steve Herbert

Analyst · Barrington Research. Your line is open

MasterCard debit.

Duncan Smith

Analyst · Barrington Research. Your line is open

Okay. I am sorry I misspoke that, MasterCard debit. So that is a higher cost piece that is making up a higher percentage of the transactions than we anticipated in the meantime contract win?

Steve Herbert

Analyst · Barrington Research. Your line is open

It’s a slightly – maybe a slightly higher cost, but it does – although not taking MasterCard debit for some time didn’t have an overly adverse effect on our business, the ability to take it has made certain customers happy, particularly at places like Citibank, where the employees couldn’t use their MasterCard, their Citibank MasterCard debit card, which is an account of ours through a partner. So, it’s made – forgive the humor, but it’s made certain customers happy even though materially it’s not a gigantic impact on transaction flow if the ability to take it in a small percentage of places has made a few people a little bit more happy.

Gary Prestopino

Analyst · Barrington Research. Your line is open

Okay. Then last one and then I will let somebody else go and jump in. You mentioned that you did a study or somebody commissioned a study that’s a credit bubble will be 40% of transactions among your customer base in fiscal ‘17. Is that correct?

Steve Herbert

Analyst · Barrington Research. Your line is open

Yes, that’s essentially, Gary, its Steve here, based upon our knowledge base, we track very closely across – yes, everyone knows the size of our customer base and location is very large. We track cashless transaction as a percentage of all transactions. And going back just a few years of cashless transactions were somewhere in the teens, in the mid to high-teens. And now we are moving to the point where we are saying is we are going to be somewhere in the neighborhood of 40% of all of our customers’ transaction fee in cashless and this is in a business that before we weighted in with our customer was 100% cashless or cash. So, it’s a company estimate, but it’s based upon the knowledge base that we look at on almost a day-to-day basis.

Gary Prestopino

Analyst · Barrington Research. Your line is open

So, can you tell – so where are you now?

Steve Herbert

Analyst · Barrington Research. Your line is open

Somewhere in the neighborhood of 37%, I believe. So, we are not talking about – this is not a monumental projection, it’s a just clearly a modest projection, if you will.

Gary Prestopino

Analyst · Barrington Research. Your line is open

Okay, thank you so much.

Operator

Operator

Our next question comes from Josh Elving of Feltl. Your line is open.

Josh Elving

Analyst · Feltl. Your line is open

Hi, good morning.

Steve Herbert

Analyst · Feltl. Your line is open

Good morning, Josh.

Josh Elving

Analyst · Feltl. Your line is open

So, a couple of questions. One, just a follow-up on the license gross margin, just wanted to maybe get a little bit more color there. I understand the one-time impact which pulled down the license gross margin from expectations a little bit here in the first quarter. I think it was my understanding that we would see some continued ramp in that license gross margin throughout 2016. You kind of alluded to 35%, Duncan, 35% give or take a couple of basis points throughout 2016. Is that the new normal for the license gross margin? Because as I recall, this used to be an upper 30% gross margin business and I just want to see if that’s the new normal?

Duncan Smith

Analyst · Feltl. Your line is open

Well, certainly, it was lower than 35% this quarter as I explained. So, if you back out that amount we have talked about that gets you to 35%. So going forward, what we said was there we haven’t seen the full benefit of the processing – payment processing service. So, it could be a couple of basis points there. And also on the cellular side, we could see a couple of basis points on the cellular side. But I can’t predict them until they happen, but I do anticipate some. I just don’t know how much and I don’t want to go on a limb and make up a number up, because I don’t have a number.

Josh Elving

Analyst · Feltl. Your line is open

Okay, fair enough.

Duncan Smith

Analyst · Feltl. Your line is open

But there is some potential, how about that?

Josh Elving

Analyst · Feltl. Your line is open

Okay. The company previously talked in its long-term outlook about getting to 0.5 million connections that could theoretically drive $100 million in revenue. As you think about the long-term outlook, you continue to talk about getting to 500,000 connections. Do you still feel that can drive $100 million in revenue?

Steve Herbert

Analyst · Feltl. Your line is open

Yes. We certainly – we wouldn’t say we didn’t believe it. So, we continue to be confident about our ability to drive that revenue and drive that number of connections by the close of fiscal ‘17.

Duncan Smith

Analyst · Feltl. Your line is open

On an annualized type basis.

Steve Herbert

Analyst · Feltl. Your line is open

The $100 million would be on an annualized basis and the 500,000 connections, of course, is a number that we feel that we can reach by the end of fiscal ‘17. Thanks, Duncan.

Josh Elving

Analyst · Feltl. Your line is open

Okay, thank you very much.

Steve Herbert

Analyst · Feltl. Your line is open

You got it. Thank you.

Operator

Operator

Our next question comes from Bill Sutherland of Emerging Growth Equities. Your line is open.

Bill Sutherland

Analyst · Emerging Growth Equities. Your line is open

Thanks. Good morning, Steve. Good morning, Duncan.

Steve Herbert

Analyst · Emerging Growth Equities. Your line is open

Good morning.

Bill Sutherland

Analyst · Emerging Growth Equities. Your line is open

I am curious thinking a little bit about the cadence of your connection and grow adds each quarter. In the past, you have kind of been weighted in the back half of your fiscal year and I am just curious given kind of the adoption acceleration you are seeing now if that gets more level or is there still that back end?

Duncan Smith

Analyst · Emerging Growth Equities. Your line is open

Well, Bill, that’s a great question and we – as recently as yesterday, Duncan and I were discussing what one would call I guess seasonality or whatever it is. And we are – I think one of the things that we all have to remember is that we are in a seriously dynamic emerging market right now. So, it’s – in the past years, we have seen typically – the past couple of years at least we have seen a slow start to the fiscal year and a ramp as we have gone through in this particular year driven by a number of things that we have already talked about, we had a particularly strong start. So, does that mean that things will flatten out this year? If I had a crystal ball, I could tell you. What I do know is that it gives us confidence that we can get to the guidance number that we put out there. But I just – I can’t say to you due to the dynamic nature of the market, I can’t say to you that the connection number would move up exponentially or in a marked way as we go through the fiscal year. It will pick up some, but the QuickStart, forgive me, the good start that we had to the fiscal year is indeed encouraging. How is that for a non-answer?

Bill Sutherland

Analyst · Emerging Growth Equities. Your line is open

You danced pretty well. So – and on QuickStart, this is statistically insignificant I think, I will just lead in with that, but the percentage of QuickStart was slightly lower than the prior quarter, the sequentially prior quarter. And just – I am guessing its noise, but I just sort of throw it out there?

Duncan Smith

Analyst · Emerging Growth Equities. Your line is open

I think we are always going to have some of these JumpStart connections. They are hard to predict, but generally, somebody who is doing the JumpStart may not qualify for the leasing credit terms, because remember these are independent third-party leasing companies and we have to follow all the rules of banking and documentation. You have to supply drivers’ licenses and all kinds of stuff to your account. So, we are looking at some additional providers of leasing and maybe have some different credit cards therein, but at the same time, some people just don’t want the 60-month commitment.

Steve Herbert

Analyst · Emerging Growth Equities. Your line is open

Duncan, I think that’s a great point. And this is something – this is not a question that – this is a question that’s come up before and we believe that JumpStart will continue to be an offering that our customers – some of our customers take. As Duncan said, one reason might be that they don’t qualify for leasing. Another reason might be that they are on the smaller end of the spectrum. They fall into what we call our SMB customer group. And typically, if you have a JumpStart customer, they are going to fall into that category, into the smaller customer group. By having that as a selling tool is something that we don’t want to give up. And I think I have said that in previous call.

Bill Sutherland

Analyst · Emerging Growth Equities. Your line is open

Last one and I apologize because I think you probably addressed it Duncan, and I am juggling on another call, but on SG&A, which at this level – I know you are looking for scalability there, but is the best way to think about it going forward is kind of creeping up from this level that you had in the first quarter?

Duncan Smith

Analyst · Emerging Growth Equities. Your line is open

Do you mean total dollars or…?

Bill Sutherland

Analyst · Emerging Growth Equities. Your line is open

Yes, I mean dollars, right?

Duncan Smith

Analyst · Emerging Growth Equities. Your line is open

I think the dollars are going to go up. We have – I think I mentioned, we have got compliance costs. This year, we are going to be a 404 Sarbanes compliant company. So that means additional auditing fees and additional costs to meet those requirements. And we are always developing – one other things we will do though is – and maybe in past, if we had an R&D project that maybe provided long-term benefit, I think we may have chosen to just expense that. So what I am going to look at is if we have an R&D project that provides an enhanced service process as a future benefit over an extended time period, we will capitalize that, which would reduce the SG&A. As far as bad debt and I have – and the thing that bad debts starting to see recovery. So maybe hopefully, we will have – maybe we will see some recovery down the road. We are in the process of building out, trying to build out those uncollected balances and we have a process where we are going to start debiting customer accounts about $20,000 a day, kind of like a little piece. But over two quarters, we could be – we will see how good our estimates are maybe we will have some recoveries there. But I am not promising anything, but potentially you could see some benefit there in the bad debt side. So total dollars will go up, we will be adding a few staff here and there to support our growth, but hopefully it will be as a percentage of revenue over time declining.

Bill Sutherland

Analyst · Emerging Growth Equities. Your line is open

Okay. Thanks again.

Duncan Smith

Analyst · Emerging Growth Equities. Your line is open

You’re welcome.

Operator

Operator

Our next question comes from Mike Latimore of Northland Capital Market. Your line is open.

Mike Latimore

Analyst · Northland Capital Market. Your line is open

Thanks. Great to see the strong start to year here.

Duncan Smith

Analyst · Northland Capital Market. Your line is open

Good morning.

Steve Herbert

Analyst · Northland Capital Market. Your line is open

Thank you, Mike.

Mike Latimore

Analyst · Northland Capital Market. Your line is open

I will just say I guess on the license and transaction gross margin, Duncan is the full benefit of the new processor and cellular costs going to be on the December quarter or in the March quarter, just want to get a clarification there?

Duncan Smith

Analyst · Northland Capital Market. Your line is open

March quarter.

Mike Latimore

Analyst · Northland Capital Market. Your line is open

March quarter, got it. And then on the gross adds this quarter, was that there kind of normal diversity to that or was there like a major contributor to it?

Duncan Smith

Analyst · Northland Capital Market. Your line is open

You mean as far as the mix?

Mike Latimore

Analyst · Northland Capital Market. Your line is open

Yes.

Duncan Smith

Analyst · Northland Capital Market. Your line is open

Well, I think what we had last quarter was highly concentrated in larger customers. This quarter was more of a mix, so it’s a little bit of everything. Last quarter was highly concentrated in the lower-margin clients.

Mike Latimore

Analyst · Northland Capital Market. Your line is open

Okay, got it. And then on the equipment sales, when you sell to like the lessor, let’s say, is it typically both a reader and it’s a limiter that they are buying or is there a big percent that they are buying, just one or the other?

Steve Herbert

Analyst · Northland Capital Market. Your line is open

Mike, it’s Steve. In virtually all cases, our customers are buying both an NFC and magstripe reader along with our telemetry unit. We call that our G9. It’s a two piece device. But they are virtually all of our customers are buying both pieces.

Mike Latimore

Analyst · Northland Capital Market. Your line is open

Got it. And then I guess just last question, is it fair to continue to assume deactivations that are sort of in that 1% range going forward?

Steve Herbert

Analyst · Northland Capital Market. Your line is open

I think that’s a very fair estimate at this point.

Mike Latimore

Analyst · Northland Capital Market. Your line is open

Okay, great. Congratulations again.

Steve Herbert

Analyst · Northland Capital Market. Your line is open

Thanks a lot, Mike. We appreciate it.

Operator

Operator

Our next question comes from Kevin Dede of Rodman. Your line is open.

Kevin Dede

Analyst · Rodman. Your line is open

Good morning gentlemen.

Duncan Smith

Analyst · Rodman. Your line is open

Good morning Kevin.

Kevin Dede

Analyst · Rodman. Your line is open

Steve, would you mind just kind of going over some of the inventory dynamics a little bit for us, now you are over 10,000 customers, could you give us a rough ballpark on how many machines you think your customers manage?

Steve Herbert

Analyst · Rodman. Your line is open

Sure, that’s a great question. We continue to feel comfortable that our customer base operates somewhere just north of 2 million locations. And therefore that existing customer base of course, represents our best opportunity for growth in the near-term. I don’t have the number in front of me for this quarter, but in previous quarters somewhere in the neighborhood of 80% of our connection growth on a quarter-to-quarter basis was coming from that customer base. But…

Kevin Dede

Analyst · Rodman. Your line is open

Yes. This quarter, I think it was 86%.

Steve Herbert

Analyst · Rodman. Your line is open

Okay. I just – yes, I didn’t have the number in front of me, but it’s – it continues to be our best opportunity for new business for a number of reasons including the fact that we have data on how their locations perform when they utilize our solutions.

Kevin Dede

Analyst · Rodman. Your line is open

Okay. Could you speak to – obviously this is probably a sensitive topic, but could you speak to at all what you think the number of machines that Cantaloupe and Crane are operating?

Steve Herbert

Analyst · Rodman. Your line is open

You know, I really can’t. I don’t know there Crane doesn’t publicize the number, but I guess of course, they are a much larger public company and it’s just not something they put out. And Cantaloupe is private. And they are – as I always say they are both fine companies. And we are close with the readership in both of those companies. And with all due respect to them, I do think we continue to dominate the business in terms of market share. I don’t know what that number is, but I do think we continue to get. And I said this on the last call we continue to get the lion’s share in any given quarter of the new connections that are available in the marketplace as it opens up.

Kevin Dede

Analyst · Rodman. Your line is open

Okay. Do you think you have a feeling for – I mean given that you have 2 million, you are not clear on what they have, are you still thinking they are about, what 6 million in total available in North America?

Steve Herbert

Analyst · Rodman. Your line is open

Well, in the vending business, there are – somewhere in the neighborhood of 6 million vending machines depending upon whose number you look at. Of course, we are focused on more than vending and some of these – we have presence in a number of verticals now that you can see in our materials. So we look – in the self-serve retail markets in which we have presence, we still quantify that at somewhere in the 13 million to 15 million locations range in terms of total market potential. We do have by – our greatest presence and our strongest market continues to be vending.

Kevin Dede

Analyst · Rodman. Your line is open

Clearly, okay. Mike – I mean in addressing Mike’s question, you talked to the G9, I am wondering how flexible your system is and whether or not your system is capable taking over a customer that might be willing to change, say if they were an existing Cantaloupe or Crane customer, could you – would you have to retrofit a machine there or could you pretty much readily have that machine come onto your system without too much of a trouble?

Steve Herbert

Analyst · Rodman. Your line is open

Well, that’s a – what a fun question, I really like that. I am glad you asked it because we don’t talk about it enough.

Operator

Operator

Sorry to interrupt. We have time one more question.

Steve Herbert

Analyst · Craig-Hallum. Your line is open

Okay. Our system, I believe, is the only system in the marketplace that has the ability to accept many types of devices including Crane’s device, the old MEI devices. We have customers who don’t even have a device, for instance, a kiosk manufacturer who used ePort software to connect to our service. We have many tens of thousands of connections as a company that either use someone else’s device or they connect to us with no device. We are really agnostic in that regard. We don’t – we would like to make the hardware sale. That’s great. And in some cases, we actually sell the hardware of other companies, but the important thing to remember is that our service – not unlike a typical payment process or even though we are not a typical payment processor, not unlike someone like First Data or Chase whoever might be were able to accommodate multiple types of devices. And obviously, we see that as a growth opportunity as different companies continue to bring new devices to market.

Kevin Dede

Analyst · Rodman. Your line is open

So Steve, you mentioned no device, you kind of lost me on that. I don’t understand how you would have a connection at all if that was the case?

Steve Herbert

Analyst · Craig-Hallum. Your line is open

Right. Well, essentially, let’s take a kiosk – and I am going to go too far in the release, but take a kiosk, for example, you don’t need an ePort device in a kiosk, because there is a computer at the heart of virtually every kiosk. We have software that our customers actually build in. They install it on the assembly line and their device comes off the end of the line. It might be a digital jukebox or whatever it might be, it comes – and that’s a real example. It comes off the end of the line. Our ePort software is installed on that kiosk and there is no ePort. All there is – and I know everyone seeing is the little black block reader that you would find on something, where there is a place to swipe your card or use an NFC type payment, but it’s not an ePort device.

Kevin Dede

Analyst · Rodman. Your line is open

Okay. So, it wouldn’t necessarily have a wireless connection, but perhaps a wired one.

Steve Herbert

Analyst · Craig-Hallum. Your line is open

It might. It might be wireless, it might not. It depends upon how they are connecting to the service. We sell our service to them just the same, but in that case, we don’t necessarily sell them an ePort device.

Kevin Dede

Analyst · Rodman. Your line is open

So, just sort of back to the ubiquitous coverage capability that you offer, are you looking at talking to customers that you know may already have some machines on competing solutions?

Steve Herbert

Analyst · Craig-Hallum. Your line is open

You are going to have to repeat that, I am sorry.

Kevin Dede

Analyst · Rodman. Your line is open

Yes, yes, yes, no problem, okay. So, 675 new customers, I am just wondering if you think any of them might have solutions provided by your competitors?

Steve Herbert

Analyst · Craig-Hallum. Your line is open

I can’t answer that. I really don’t know. I just – I couldn’t say. There is so much new business out there that us taking business from a competitor is not something that’s normal. However, the other scenario that you laid out having a customer come to us who has purchased devices from another one of these companies, they have come to us and said, look, I don’t necessarily like service B over here, but I – and I am not trying in any way to disparage those services. It’s just the customer would come over and say look we would like to be on your service. That’s a scenario that’s happened and that’s kind of a competitive move, but the other scenario you have described is not something that happens very often.

Operator

Operator

At this point, we don’t have time for further questions. I will turn the call to management for closing comments.

Steve Herbert

Analyst · Craig-Hallum. Your line is open

Well, thank you very much everyone for taking the time today to discuss our Q1 results. As I said, we are very encouraged to be off to what we believe is a fast start to the fiscal year and the team is hunkered down and working hard. So, thanks for your continued support and we look forward to reporting back to you soon. Have a great day.

Operator

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.