Q3 2020 Earnings Call
Welcome to Park City group fiscal third quarter towards <unk> earnings call. At this time all participants are in listen only mode. A question answer session will follow the fall presentation should you require operators. This is starting to conference. Please press star zero to see hone operator. Please note the conference is being recorded.
It's now my pleasure to introduce your host Rob think would think IR Mr. Frank you may begin.
Thank you operator and good afternoon. Thank.
Thank you for joining us today Park city groups fiscal third quarter 2020 earnings.
Hosting the call today already fields Park City group, CEO, and chairman and job Merrell Park City Group CFO.
Before we begin I would like to remind everyone that this call could contain forward looking statements about park City group within the meaning of private Securities Litigation Reform Act.
<unk>.
Forward looking statements statements that are not subject to historical.
Such forward looking statements are based upon current beliefs and expectations.
Citigroup management subject to risks and uncertainties, which could cause actual results could differ from those forward.
Such risks are fully discounts in the company's filings with Securities and Exchange Commission.
The information for you and should be considered in light of stuff.
Park City group does not assume any obligation to update information combined and then.
That's cool.
Shortly after the market closed today the company issued a press release overview financial result that we will come from today's call.
There's can visit the Investor Relations section of the company's website at Park City Group Dotcom.
Absolutely.
All that said I'd now like turn the call over to John Merrell job Mccall with yours.
Thanks, Robin good afternoon, everyone.
For the last several conference calls we are focused on three core messages first we shifted our business to prioritize recurring revenue over nonrecurring revenue.
This does not change and the trend continued in the March quarter as the year over year decline in revenues was largely from nonrecurring revenue.
While we experienced delays and supply chain customer implementations and slower tier two expansion due to cope with 19, we offset a portion of this customer driven slowdown with modest growth in our existing base recurring revenue increases the marketplace revenue.
Second was our focus on strengthening our balance sheet as I've said before our customers demand at this effort is critically important as PCG, yeah, maybe global economy faced the disruption and uncertainty associated with the pandemic.
Preservation survivability or more vital now than ever before.
Third was our focus on growing the network, we will not waiver. However that effort took a backseat miss quarter.
We remain laser focused on growing our network as you might expect many of our target customers were busy with pandemic related disruptions and not able to focus on our offerings.
There were other customer priorities in an environment that list as ever experienced before.
I'm optimistic that we will see new and expanded opportunities as our customers and the consumer shift from preoccupied panic to stabilizing the supply chain and resume some sense of normalcy.
I'm confident that the grocery industry will focus on how to avoid these challenges in the future.
Why don't normalcy resume what is the new normal it's anyone's guess.
In the meantime, I believe our customers, both large and small demand partners, who will assist them through these uncertain and volatile times.
I also anticipate there will be much more selective working with companies to position themselves financially to weather the storm.
Well, our profitability and cash generation declined in the quarter on a sequential and year over year basis, the pandemic significantly impacted the grocery supply chain and how our customers do business.
This situation, maybe short term in nature.
Nonetheless, the services and peace of mind, we provide our grocery customers and U.S. consumers has never been more vital, particularly when it comes to what we do food safety compliance and supply chain visibility.
In early March 2020, as the depth of putting pandemic unfolded, we took steps to reduce costs.
As I've said before take 17 billion a year to run this place absent marketplace.
In response, we made a defensive decision to tighten our belts and reduce cash operating spend to less than 16 million absent marketplace.
Some of these expenditures cease naturally as a result, the projects that were completed or we halted.
Lets business travel given the pandemic related shut downs cancellation of trade shows and lower commission due to lower revenue.
Keeping our employees safe, we focused on other cost areas, whereby we took in more aggressive approach.
This included but was not limited to professional fees consultants software and maintenance contracts going across the board general overhead reduction.
Although no assurances can be given this may reduce our monthly cash expenses by 100000 always come up.
Also in March we launched our food source USA program.
This unique online platform utilizes our proprietary data to provide the department of defense with information. So they can proactively address chronic imbalances in the food supply chain caused by cobot 19, and prepare for other crisis situations in the future.
This enables the yogi to visualize shifting surplus food and one part of the country to another where such food may see a low supply.
As Randy will explain in more detail, we view our position in the grocery industry as a public trust, helping to presume food safety, an adequate supplies and the largest subset of the economy. This is a prime example.
Our marketplace offering is another example marketplace revenue was up 66% in the March quarter. Most of that increase took place in the last few weeks of March.
This was the result of our customers seeking all sorts of hard to find items, such as gloves masks and other items to facilitate stay at home and work from home mandates.
Just chest freezers web cameras microphones portable Bluetooth speakers and other such items.
Our ability to connect retailers with new suppliers helped our customers meet unprecedented demand quickly and safely.
As we have said marketplace generates lower margins than the other parts of our business. This revenue mix contributed to our reduced profitability, but this is a vital service that strengthens our value with our customers.
Turning to the numbers.
We generated 2.3 million in cash from operations for the first nine months of fiscal 2020.
This compares to 3.5 million that we generated in the first nine months of the prior year.
Total cash as of March 31st 2020 was 17.9 million down 5.3 sequentially from the 19 million at December 31 2019.
On March 17th we halted our stock buyback program for the foreseeable future.
Deferred revenue for the comparable period decreased by 11% or $213000 due to delays in implementations and completed contracts.
Our accounts receivable increased sequentially by 13% from 4 million to 4.5 million as our grocery customers and their suppliers opted to use cashed order product stocking shelves and keeping the supply chain moving.
The third quarter fiscal 2020 total revenue was 4.63 million down 7% from 5 million in the same quarter and 29 cheap.
Recurring revenue grew 5% to 4.2 million for the third quarter fiscal 2020 up from 4 million in the same quarter fiscal 2019.
Year over year recurring revenue as a percentage of total revenue increased from 80% to 90%.
Year to date fiscal 2020 total revenue decreased 16.5 million to 14.3 million, but first nine months of fiscal 2020 down 14% from the same period of fiscal 2019.
It should be noted that last year's nine months revenue included 2.9 million of nonrecurring onetime revenue most of which did not occur in the nine months ending March 31 29 team.
[noise] recurring revenue for the first nine months of fiscal 2020 grew 4.3% from 11.8 million in fiscal 2019 12.3 million in the same period fiscal 2020.
Recurring revenue for the first nine months of fiscal 2020 as a percentage of total revenue increased from 71% in fiscal 2019, 86% in fiscal 2020.
And the third quarter fiscal 2020 total operating expenses were 4.4 million, an increase of $408000 or 10% from $4 million and Q3 of 2019.
This increase is largely the result of higher costs associated with marketplace higher depreciation associated with our 2019 Capex spend an increase in costs associated with telecommuting due to the stay at home mandate.
Total operating expenses for the first nine months of fiscal 2020 increased to $13.3 million versus $12.8 million up 4%.
As I've discussed previously absent marketplace costs are fixed operating expenses are approximately $17 million per year to operate our business.
We anticipate reductions to offset the free sales positions, we hired in Q2 to accelerate our tier two initiative and maintain net neutral operating expenses for fiscal 2020.
In the third quarter fiscal year 2020, net income to common shareholders was $125000 or one cents per diluted share compared to $921000 or five cents per diluted share in the year ago corridor.
The decrease in net income to common shareholders largely the result of a decrease in onetime revenues approximately $500000 lower than to dissipated implementation fees due to customer disruption higher marketplace cost increase in depreciation and amortization additional sales staff and costs associated with the stay at home mandate.
On a year to date basis net income to common shareholders for the first nine months of fiscal 2020 was $674000 worth three cents per diluted share compared to $3.3 million or 16 cents per diluted share in the year ago period.
The year to date decrease in net income to common shareholders was largely the result of lower onetime revenues of $2.7 million higher marketplace costs, and higher depreciation and amortization due to our 2019 Cabot capital expenditures for data center.
Under the current stock buyback authorization, we repurchased 157616 shares of common stock at an average price a $5 in 10 cents per share in the March 2020 quarter for a total of $803000.
To date, we have repurchased a total of 499786 shares of common stock at an average price a $5 in 28 cents per share for a total of $2.6 million.
As I mentioned earlier as the pandemic unfolded, we halted our repurchase efforts on March 17th and we do not plan to repurchase any additional stock in the near term.
As previously stated the company hold to know Treasury stock the stock purchase under the buyback plan is retired from issuance and hence reduces the total amount of common stock outstanding.
Since may 2019, the company's reduce its total net capitalization by 2%.
Total amount remaining under the buyback plan for purchase and retirement of common shares on the existing repurchase plan, if or when it reserves is approximately $1.4 million.
At this point I will pass the call over to Randy ready.
Yeah.
Like everyone. We found ourselves the new unique and challenging position this quarter with a pandemic there's been the way we do business impacted our customers both large and small it also impacted our employees with uncertainty in distraction.
Thankfully, we were already largely a remote based organization with very strong collaboration so the transition to a virtual environment was actually relatively smooth.
We're fortunate that we are in the grocery supply chain. Many non food retailers have faced abrupt and significant disruptions to their business, including for some literally a total hole to revenues.
Our grocery store customers face a different set of challenges, including new steps required to keep employees and customers safe. Indeed, the grocery industry may be the only industry do experienced more muted consequences to the economic challenges all of this are facing.
The worst things get economically more things become discretionary, but certainly not food.
Supply chain challenges, we've been talking about for years are now at the top of everyone's mind anyone who's been in the store in the last few weeks knows that some things like toilet paper and certain cleaning supplies are fully out of stock and in addition to add even some of the basics and essentially ingredients for cooking and baking at home are equally out of stock other.
Adams are way oversupplied, indeed, the supply chain is being challenged unlike ever before.
And we're in the middle of that.
Food safety is critical even more critical times of disruption in crisis compliance. Although it remains critical we're finding our sales cycle is being extended due to near term emergencies. We think this will only last a short while as our customers deal with the immediacy of dressing dependent make induce challenges.
Digital changes our customers adapt to the new normal and as the supply chain ultimately follows but well uncertainty and volatility exist in the short term, we think the long term changers frankly favor us in our abilities. We are not peripheral to the food supply chain we are essential.
As John alluded a customers rely on our data and our efforts to help them navigate these uncharted waters.
Sure. This wasn't a great quarter in terms of building out the network with our tier two initiative our customers are focused obviously.
In the complete resource allocation and attention to responding to depend death.
Our efforts, though will restart sooner rather than later and we will begin dad, many more tier twos.
Our system as John said, what we do represent a public trust, we see our role as a critical part of making sure. The grocery supply chain continues to function smoothly with safe food, a streamlined compliance system that doesn't create headaches or overwhelm anyone with paperwork and a platform to effectively connect suppliers with retail.
First and retailers with suppliers.
And then important way. This pandemic is reinforced how significant we are to the whole of the ecosystem. Our customers know this now frankly more than ever.
Our position with our customers up and down the supply chain this and reinforced and we will continue to improve our strong competitive advantage once the normalcy returns.
To underscore how essential we are to the grocery supply chain I'd like to point out a few significant facts and I suspect you may never had thought of us in this context won more than half of all U.S. food safety audits are done on our platform.
We are certainly the largest compliance network in the world. These two parts of our business are critical to keeping that food that all of the seat safe.
The department of Defense thought we were essential in helping to address the systemic food supply imbalance is another words, it's not just our opinion, it's the government's opinion that thinks that what we know in what we can do is important.
And finally, our platform enables buyers and sellers, a perishable goods at supermarkets and mass merchants to get paid without us suppliers don't get paid and things like milk bread soda snacks. Another perishable food will not be sold to the extent they did isn't a grocery industry and certainly would be much harder to source. So.
In a sense, where vitally important to the safety in availability the important foods in the supermarket supply chain.
Our customers and consumers there for actually depend on us.
That isn't important mantle, we don't taken lightly in fact, it's the definition of the public Trust, we must protective business to maintain that trust can we are but like everyone. Our businesses experienced disruptions due to the pandemic in this new environment recurring revenue obviously is increasingly important.
As ties back to sustainability and predictability of our business for our customers and having a large growing base of recurring revenue certainly helps me to sleep at night.
Revenue this quarter incidentally was completely related to non recurring revenue that occurred last year as the environment stabilizes, we are still position for year over year recurring growth and total topline growth now that we've reduced nonrecurring revenue as much as we have.
Well this pandemic reinforced the importance of out of stocks to our customers. The challenges. They face right now are well beyond our out of stock offering the lack of essential items, such as eggs and toilet paper were not due to an oversight or minor changes and buying patterns was due to a line of customers around the block buying up supplies, but I have no doubt that just things.
Begin to return to a more normal retailers will be thinking about how to bleed out of stock interruptions in the future and our offering will gain more traction.
Look into the future customers require as part of their continued trust in us that we maintain profitability in the strong balance sheet without financial stability, they could easily lose confidence and that would create ripples in the supply chain not just with us, but literally across the entire food supply chain.
If you have this need for us to remain strong we've cut costs out of the business decreasing our risk increasing our comfort and therefore, hopefully our customers comfort.
We lack good temporary visibility everyone does decision, making slower in the implementation of delivery of our customers is reduced as they deal with their supply chain labor a problems et cetera, and basically all of these wells that are brought upon them by the pandemic on a day to day basis, and the intermediate term weve reinforced our positive relation.
In chip with our customers, we've demonstrated to them over and over again, our value. We are essential and we really mean that without us food would be less safe and harder to find as a result, we believe we have many more opportunities for our services and to our customers. When the pandemic is over so with that I'd like to open the call for questions.
Operator.
Thank you.
At this time moving conduct pay question answer session. He would like to ask your question. Please press star one of your telephone keypad.
Confirmation tell way to get your line is in the question Q. If at any time you wish to remove your question from the Q. Please press star too.
Participants using speaker you could have it maybe that's necessary to pick up your had said before pressing the star Keith one moment, please only poll for questions.
Our first question is from and Peru.
With loop capital markets.
Hi, Randy Guy good afternoon, and glad to glad to hear that you guys sound like you're you're safe and and you're doing well and that.
Yeah, Yeah. So that's good and it sounds like you guys actually looks like you guys. They had good execution this quarter as well so congratulations on that.
Randy a couple of things if I could you.
You made a comment a moment ago and I tend to make sure I'm understanding it accurately about.
All the all the growth this quarter or other revenue this quarter the magnitude of the being recurring.
Keith could you just tease that out a little debt because it also seems like you did really well with marketplace and.
And I think of that is being just state from the recurring so on and make sure that that I am I understanding here a year common accurately.
Good Okay and under thank you.
The way, Randy and I think management looks at the business is this we have.
Three components. One is an old then fading component, which was licensing and services that has been decreasing substantially over the course of the last year.
The other piece of the business that we consider to be the most important piece is the recurring revenue subscription type business.
That part of our business is growing in another words. It went from 4 million prior year to about 4.2 million in the current quarter.
And we then have the market place in the marketplace, Yes was definitely up substantially in the quarter, especially in the last few weeks so going forward.
As the old license seen services piece of our business.
Fades and we're pretty close to having push that behind us.
Now what happens is you have two significant pieces of business the recurring piece, which is growing and the marketplace, which at the moment also appears to be growing and growing at a pretty rapid rate.
If anybody goes back a couple of years, that's really where we wanted to be and now that we've got that third piece. The tale of the business the licensing that said or a onetime stuff behind us it feels as if going forward those two pieces should both do very well.
Did that did that help it didn't really yeah rate yet that's great. That's very thorough and so my next question. Then is are you.
Yes, if that if I'm understanding all the math accurately does that mean that you stand a really good Chad.
Generating year over year revenue growth in the June quarter. This current quarter.
Given that the recurring revenue seems like it would get jobless backed up a flat.
In June quarter last year, and then my Hunch is you get some incremental marketplace. This quarter, you know something like that I just want to ask that question and that doesn't have a follow up as well.
Okay. Yeah, let me, let me see if I can help again, here's how we see things in the current quarter last year, one year ago same quarter that work. It that we just finished.
We had about $500000 other than marketplace of onetime revenue.
So if you look at our revenue this quarter you can quickly see that Oh, we did better than the.
Number that you would expect from simply removing that wasn't tight revenue, which is what we did so in other words there was growth in the quarter.
And as we look out it's really a non to it is the environment. We're in is what do I say, it's once in a lifetime for sure.
So we have a high degree of uncertainty, we're managing the business conservatively, but we feel as if just the way the numbers now we're rolling out we've achieved the reduction in onetime revenue well ahead of plan, we would've guessed it would have taken nearly two years and now it would appear.
Our that it's largely behind us it at the end of a single year. So we feel pretty good because our recurring revenue is is continuing to grow and improving that's our focus and you don't have to be I end Stein to figure out that helping people, which marketplace. If you remember was in 10.
To do is to find those things are hard to find and that are emergency fills. If you will so you can probably figure out that marketplace.
<unk> is experiencing.
Some growth here so both pieces going forward feel very good at the moment that's about the most of that I can say given the uncertainty.
Well that's super helpful. Randy and then my last one for now and now I'll see before I get back in the Q.
It sounds like and this is just based on some of that but the paired remark sounds like a.
Licensing and services at least in March began to see the impact Didnt says you know sort of having fixing that are being shut down things like that.
It sounded as well as yet, but I would love is any context. There. What can you is that accurate assessment and then.
Can you give us some sense of what April in the first couple of weeks of May have looked like.
With regards to licensing and services and really what I'm wondering is.
Good thing in March really began to impact that.
Well I did kind an April and May do they look a lot like March that business right now.
Yeah, I think the the answer really is this is that the environment is making it easier for us to reduce onetime revenue in other words.
Historically, our customers who had been buying licenses now obviously would like to conserve cash stuff that makes it much better for us much easier to convert that into a non licensing or recurring revenue. So it's gotten easier we feel good about it.
And.
I'm not sure theres much else to say, but I think the world now is in cash conservation mode and that bodes well for recurring SaaS revenue versus licensing revenue.
Okay. That's great that's really helpful. Thanks.
Thank you Pat you bet.
Our next question is from Thomas Forte with D.A. Davidson.
Great. So Iranian John glad to hear doing well stay safe I have four question I'll go one at a time. So first one is a Iranian John how should we think about the opportunity for you to add <unk> for your scan base trading efforts from existing retailers.
Well I.
In a way this the whole supply chain now is up in the air meaning I think theres an opportunity to help reshape as we come out of this situation reshape how retailers and their suppliers think about our scan based trading.
Out of stock initiatives et cetera, we feel.
Very good we've actually seen a modest amount of expansion.
And interestingly more interest on the part of our existing customers in terms of thinking about these kinds of problems. So again, the uncertainty is high Tom that needless to say, but as the supermarket segment.
Stabilizes, if you will you're going to see a we think more interest in how do we fix this problem that got terrible in the last two months, how do we fix this out of stock problem, how do we watch the explosion of our balance sheets and here's something to think about.
Historically 15 years ago, the supermarket industry would have had two to three months of inventory.
On hand in warehouses et cetera.
As it leaned out the inventories over the last 10 years, hopefully reducing the cost of capital. They now caught themselves in a short inventory position, we think as they begin do envision a future that scan based trading feeds into that just perfectly.
And certainly our out of stock work. So we feel really good about where the world is for US right now in that respect the uncertainty though is high.
Okay and then my second question is you touched upon this in your prepared remarks, it's the opportunity from marketplace to address out of stocks of basics, such as hand, sanitizer and toilet paper.
So my question is why not what why can't marketplace.
Address those situations.
Well you are asking a a very interesting question and as the management team talks to each other certainly some of that has moved into our domain.
So as hard as we've resisted that people have come to us to help them source. Some of these difficult things like hand sanitizer and.
That kind of stuff, you're you're spot on and the question is do we want to try and stay in that space et cetera.
I think I'd mentioned in a previous call by this summer we wanted to be able to make a decision about marketplace and its ongoing role.
And obviously something this happening out there and.
You'll do we know if this is a permanent change because we certainly established I think it's fair to say, we're establishing more new relationships in marketplace and as you know we are maniacal about our execution, just we want our customers to feel like.
Oh My God. These guys are the best at whatever we do and we're maintaining that standard so [noise].
We're moving into that space very gently Tom and we're again, so long as our execution remains as good as it has will probably stay the course.
Okay, and then for the third one of before I wanted to go Big picture.
Randy I'd love to hear your thoughts on the implications of covert 19, when it comes to China's role in the global food supply chain.
Yeah, that's a Ah that's a really really good question, let me back up one step.
Because there's a cross current going on.
The cross current is is this is that if you go back to the theory of supply chain. The began about 20 years ago with just in time inventory et cetera.
And just in time manufacturing.
People length and their supply chains, they leaned out their inventory levels, even though the cost of capital has fallen dramatically.
So you could argue maybe that wasn't such as smart idea.
And they lengthen the distance and therefore time over which replenishment could take place.
And much of that ended up in Asia, you would be amazed at how much of our canned goods for example come from Southeast Asia.
What's terribly clear to everyone in our industry in the food industry is maybe that was not so maybe that was not a great set of decisions. So I suspect several things are likely to happen. This is just start theory, it's a working theory.
And candidly it benefits us so I I'm guessing there's a bias in it but I don't feel the bias I think it just might be there.
People single sourced their products I think that's kind of go away I think people will now multi source their products in the event that a supplier can fulfill I think you're going to see a lot of stuff. That's in China come back and really for a couple of reasons the distance has been.
A problem the interruption has been a problem.
We see it with a number of our customers that the supply chain not just over the distance, but as you know.
The Chinese were at their peak of the covert experienced they almost closed their ports. So lots of product on the ocean ended up being much delayed and I think all of these were negative experiences not so much just about China, but about the distance problem and that dependency on the slow freight system.
So we're seeing people beginning to address whether moving all of this off shore was worth it.
There were certainly cost advantages, but the question is.
In retrospect wasn't worth it.
The other hand, so there's that says that I think there's pressure here in the U.S. and even in food to shorten the supply chain begin to be I don't want to use the term self sufficient because I don't know that that's right, but more stuff produced in the U.S. I think is definitely going to happen.
Interestingly, though we've had a great deal of interest, we don't know where literally no promises here, but we are exploring repositrak compliance management opportunities.
Outside the U.S., we're looking carefully at Mexico, and frankly in China.
Again, no promises about how that might unfold. So on one hand foreign countries are looking to our standards and systems on the other hand, I think the U.S. food supply chain.
Is going to become more U.S. dependent than for independent overtime.
Great all right. So my last one then I'll get back into queue that because I might have one or two more how should we think about the financial health of your ecosystem tier one tier two suppliers and bad debt risk.
Oh, Yeah. That's another good question we.
We <unk> I suppose if there is a place to be in general, it's where we are a food has always been considered to be defensive as I said in my remarks, it's absolutely true you may cut out your discretionary spending, but you will not come out food so food real.
Ladies activities the food retail food system is is doing well, it's experiencing obviously, how do you expand how do you keep product on the shelf, it's a high class problem in many respects.
Having said that because of how they're doing their purchasing.
There's clearly.
[noise] a pressure for everyone to strengthen their balance sheets.
The consequence of everybody strengthening their balance sheet is that we're seeing our receivables move out a bit.
We're seeing some smaller companies who are more discretionary spend have trouble.
Here's an example, a we do some work in cut flowers in grocery stores I don't again, you don't have to think too hard to realize we'll let part of the business is probably soft for the flower guys and that's a true statement. So some of those are seeing contractions in in their business.
Yes.
Arkansas I think our Reservable our receivables are very conservative we do reserves were pretty comfortable that a bad debt is not going to be a growing problem for us, but we're approaching it conservatively.
Thank you.
Matt.
I guess, that's a no from John.
Our next question is a follow up from an under <unk> capital.
Hey, Thanks, guys.
Got it Hey, just a clarification for John around around Opex in <unk>, John did I hear you.
Accurately that you said net neutral on backs for fiscal 20, and then that and given that this quarter as though.
Given that given the dynamics there is somewhat unpredictable right now what's a responsible way to think about opex for at least the beginning of fiscal 21 or how are you guys thinking about it.
Yeah, I mean, it's some of the projects were completed and so that's natural obviously no one's traveling right now that will come back, but we've done some belt tightening and gone through every line item RPM now.
To reduce the spend that I think can be about a $100000 a month.
Going forward.
And as I said as far as a net neutral increase absent marketplace.
Because obviously that has a lower margin I do believe will be met flat for the year.
Actually we think of that all things equal that kind of run rate going into fiscal 21.
I think it'll be lower because you're only picking up you know three months of the fourth quarter and certain contracts will expire certain things that weve implemented cost cutting will start in mid July or August or September October, but on an average over Doug you know forward 12 months, not making a prediction but.
Based on our numbers, you'll see about a reduction of about 1.2 million app to marketplace going forward.
Okay, that's helpful and.
<unk>.
It sounds like I mean can you guys like particularly when you get the cost reductions really kind of kicked in can you guys.
Yeah, we talked about a cash neutral situation with you guys.
Meaning are the level that you're sort of gonna be at you know.
Very sustainable it seems like the recurring revenue is getting pretty sticky it almost feels like you could have flat revenues sequentially through this thing because of the <unk> because of the recurring base you've put in.
What I'm wondering if they get the receivable just stretching out but you can.
This is super Rafik, you're offsetting that relatively speaking.
But cost reduction and your belt tightening.
Can you guys be cash neutral or I should there are there other moving parts and we should we see worry about.
All right not worry about but be aware of.
Well, you're asking are really tough quite you're asking the tough question [laughter].
Let's go, but let me I'm I'm going to dance around it and on the share even be prepared.
It is important to our customers to our customers because of this public trust issue.
That we'd be a profitable company.
That we'd be a cash flow positive company and that we have a strong balance sheet.
It's really significant to think about the fact that billions and billions a year of product couldn't get paid for couldn't get invoice if we didnt exist.
So we've always talked about the need for the strong balance sheet now in a way more than ever our customers want us to be a secure want us to be here want to be sure. They can lean on us.
And we think there is an opportunity in the current environment.
That compliance is going to become very important that more of our supply chain activities will be absorbed by our existing customers and new customers and the marketplace should be obvious. So we think.
That we want it to be better than neutral.
We've reduced our expenses significantly.
We're watching every nickel and.
I I think it's fair to say, if we were only neutral.
Management would be disappointed how's that for dancing I think you get that that that's pretty good and what I realized I just wanted to make sure that I'm not being.
Yeah, two opaque and I used the word neutral I, you know sort of current current Castillo.
Free cash flow run rate I guess is what I'm talking about current cash generation run rate I am saying using that in terms of new Joe meaning maintain current levels, despite going into a macro challenge dynamic is what I'm talking about.
Just to clarify that.
Yeah, you're yeah, we're comfortable that.
That that's really the goal, but by reducing our cash spend.
And by having our recurring revenue growing.
If you subtract one for the other it puts us in a shape that our customers want us to have.
Yeah, I got to be into it it was I've been to indirect.
No no no that's great that's very helpful.
Yeah, and that was saying that was that was an important decision by the board and management that.
We had to be in a place where our customers. We're not worried they shouldn't be worried so the cost now of of the company the ongoing cash cost after the reductions et cetera.
Is clearly below the anticipated rate of.
Recurring revenue.
Yeah, that's great.
Thanks, I appreciate all the contact Oh, you that absolutely.
Our next question is a follow up from Thomas Forte with D.A. Davidson.
Great. So last two for me so first Randy seems like coven nineteens when a catalyst for online grocery.
Would you agree and what are the implications of that for Park City group.
[noise] Oh, we certainly agree but it's it's more mix than I think most people think about because it hasn't been a terrific experience for customers trying to do it.
Meaning in many cases, they couldn't get to delivery slot etcetera, I remember a core aspect of our business is maintaining inventories, meaning literally the inventory counts in the direct store delivery business.
And about 30% of the sales inside of a supermarket our products they get to the store direct store delivery now the issue really is somebody goes online and wants to order milk or whatever and the fact is that.
Of those inventories tend not to be correct.
So there's a great opportunity for us to expand our footprint and hopefully we'll be able to take advantage of that so that the online orders become more efficient another words bike count less than 25% of all online orders are properly filled without.
Substitution if that were a manufacturing businesses they would be broke.
So the reality is the online ordering issues are enormous.
And we can help get that straightened out so both the out of started problem and what what's the value of the inventories in terms of counts are right in our wheel house. So online ordering will grow it'll probably shrink actually to a certain extend as a percentage of sales when cove. It does go.
And it probably although certainly won't go back to where it was it will be higher but what we do is needed more than ever to help people keep accurate counts of what's on the shelf. So again, we feel we feel good about where we're positioned.
Great. So last question for me.
With a strong balance sheet and.
Cash flow generation.
I would imagine you have a lot of opportunities.
The M&A front.
What would you how would you characterize your current M&A strategy.
Well candidly the last.
Six day weeks, we've been heads down in execution looking that up projects that we could wrap up et cetera.
There's still a couple of ongoing things that are critically important to us going forward in terms of our own technology Ah, but we feel like the current environment, probably create some opportunities because of.
The financial pressure lots of people will be feeling so our eyes are open and.
Where something to come along we certainly want to be able to take advantage.
Good alright, thank you for taking my questions stay well thank you.
Ladies and gentlemen, we have reached the end of the question and answer session or out of time for today's call.
Park City group. Thanks, you for your time participation you may disconnect your lines at this time.
[noise].