Q1 2021 Park City Group Inc Earnings Call
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Greetings and welcome to the Park City Group first.
Quarter 2021.
And.
And at this time on Mcdonald listen on the mood.
And I can move on and a formal presentation and.
And you should require any operator and <unk>.
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And your discomfort.
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And is now my pleasure to introduce your hosts ROTC with us and K I R.
Please go ahead.
Thank you operator, and good afternoon, everyone. Thank you for joining us today for park city groups physical first quarter earnings call, hoping to call today, and Randy Fields Park Citigroup C E O and Chairman John Merrill Park Citigroup see about.
Before we begin I would like to remind everyone that this call could contain forward looking statements about park citigroup within the meaning of the private Securities litigation reform that a 1995.
Forward looking statements are statements that are not subject to historical facts and such.
Such forward looking statements are based upon current beliefs and expectations.
Park Citigroup management.
Our subject to rest and uncertainties, which could cause actual results differ materially and those forward looking statements such risks are fully discussed and my company's filings for the Securities and Exchange Commission, the information set forth year and should be considered and light and such risks.
Park City group does not assume any obligation to update information contained and this conference call.
Today, the company issued a press release overview on the financial result that they will discuss on today's call and <unk>.
Masters can visit the Investor Relations section of the company's website and Park City group Dotcom to access this press release with all that that and now like to turn on the call over to John Merril, John The call was yours.
Thanks, Rob and good afternoon, everyone. Today report financial results for the first quarter of fiscal 2021 and being on September 30th.
Highlights for the quarter are as follows recurring revenue growth for our says business, which includes compliance and supply chain was up six per cent <unk>.
Market place revenue grew 15%.
Gross and all free product lines are consolidated revenue grew nine per cent.
SG&A expenses decreased 10 per cent.
Net income more than tripled cash.
[noise] from operations was 1.22 million and our balance sheet remains strong.
Bottom line is that over the last year, we have built a profitable diversified growing business with a strong recurring fast component and a modest cost structure.
Considering the significant challenges related to the pandemic and ongoing uncertainty I am encouraged with our results.
And we have communicated before our software business comprised of compliance and supply chain services is now effectively all recurring and nature.
Eliminating a significant amount of one time license for revenue and shifting to recurring revenue, while maintaining profitability was a significant challenge to say the least.
Be sure of the pandemic has elongated sales cycles for our software solution and create a near term challenges, but and the first quarter. We grew our software business and we have proven the value we bring our grocery customers by helping them navigate this environment.
We still have just 10% penetration with our existing customers. So farming, our own customer and network remains your top priority for opportunity.
We could significantly grow our software business just by farming our existing network.
The second revenue stream and our businesses marketplace, which allows buyers and sellers of source hard to find things within our network of 20000, plus that it's retailers on their suppliers.
Cause I have said before market places largely transactional and inherently unpredictable.
The size and scope of transactions can vary from quarter to quarter based on seasonality by your preferences pricing and the latest demand for those hard to find things.
Because we sit between buyer and seller our margin whether as a markup of goods or a commission is substantially less and we get on the software side of the business.
Gross margin on incremental revenue of our software business days is approximately 80 to 85 per cent. Conversely market places on average roughly five per cent.
We are focused on expanding that margin both within and outside the traditional gross or segment, Randy will speak more on that topic dirty during his remarks.
Well, both the software market place components of our business are difficult to separate from our business strategy and software suite or overall offering to our customers as a combination of solutions that enable customers to be compliant have more actionable visibility and and their supply chain, replacing vendors diversifying product offerings and sourcing hard to find items.
These two parallel product offerings provide management and investors visibility into our revenue stream utilizing their current revenue as a baseline and the opportunity for higher gross from our Margaret place offering.
[noise], while marketplace generates a lower contribution margin it remains profitable.
As we said on the last call our fixed costs are fully covered bar, a recurring revenue, giving us predictable and sustainable profitability.
And addition, we have significant and growing cross selling opportunities between these three products compliance supply chain and marketplace.
Turning to the numbers.
Fiscal year 2021 first quarter revenue was 5.23 million up nine per cent from 4.8 million and the same quarter last year.
[noise] total operating expenses decreased one per cent from 4.7 million and chew on 2020 to 4.6 million and queue on 2021 and.
And the principal driver and a decrease in total operating expenses was a 270000 dollar decrease and sales general and administrative costs.
And respond to the Covid environment, and we said through cost cutting measures. Our goal was to reduce cash operating expresses by $100000 a month absent marketplace.
I believe our numbers reflect we're headed and the right direction.
[noise] caused the services and products support expenses increased eight per cent from 1.8 million and Q1, 2022 2 million and the same period and 2021.
The increase was the result of higher expense associated with higher marketplace revenue and partially offset by cost reductions and hosted software charges.
Sales and marketing expenses decreased from 1.4 million and queue on 2020 to 1.3 million and Q1 2021.
This 9% decrease was the result of lower sales travel tradeshows and cost reductions off set and park by higher commissions due to higher revenue.
G and a cost decrease from 1.2 million and queue on 2020 to 1.1 million and the same period, a physical 2021.
And this was primarily the result of lower travel related costs completion of certain projects and cost cutting measures, we implemented and the fourth quarter of fiscal 2020.
For the first quarter of fiscal 2021, GAAP net income was 555000 or 11 per cent of revenue vs 178000 or for per cent of revenue.
[noise] GAAP net income to common shareholders was $408000 or two cents per diluted share compared to $32000 for zero cents per diluted share.
Turning out of cash flow and cash balances.
For the first three months of fiscal year 2021, we generated cash from operations at 1.2 million compared to 713000 and the prior year period and increase of 72% due to a higher operating margin on incremental relative.
Total cash on September 30th 2020 was 21.2 million compared to $20.3 million at the end of fiscal year 2020.
On a final note on cash and balance sheet strength.
Keep in mind balance sheet strength is a necessity to our customers they demanded particularly and this unprecedented time.
Therefore, we continue our focus to grow cash through recurring revenue and well controlled cost structure, maximizing profitability and generating value for customers and shareholders.
With respect to our stock buyback program as we said during the height of the Covid been on Demick, we made a prudent decision to halt our buyback program.
And we do not repurchase any shares during you the fourth fiscal quarter or the first physical for the.
The company has 1.36 million remaining on its existing stock buyback program and given our current ability to generate cash we may consider optimistically resuming the program at some point and fiscal 2021.
Thanks, everyone for your time today and at this point Oh pass the call over to Randy Randy.
Thanks, John.
For the past two years, we've been focused on building out the three legs of our stool and clients supply chain and market place. This evolution follow a logical progression our supply chain and compliance products aside from being industry leaders and enabled us to create the industry's largest database of complaint suppliers and fact.
Likely it's the largest database of food that's J suppliers period.
For now and the process of monetizing net highly skilled data.
The initial for Ray to monetize the database was simply helping our customers find alternative vendors when a particular vendor failed remain compliant hence marketplace was boring.
From simply avoiding and providing call it informational capabilities to our customers, we began healthy and our customers actually find hard to get items.
Both of these capabilities of growing over the last two years and clearly for both services. The current environment and is excellent not perfect, but certainly excellent.
Most participants and the global food supply chain are looking for new products and new suppliers. As a result, we expect to see and accelerated adoption of our platform and the future.
Our obsession with execution and reliability for our customers will be very important and marketplace just as it is and our other product lines.
For what are we are we think big things are possible with market place. So we shall see.
As we said last quarter the transition from one time to recurring revenue is effectively now complete.
So for the most part of our software is now sold on a highly predictable says model.
Simultaneously, our marketplace offering and has now been validated with multiple successful use cases, it's proven to be a very valuable platform and.
It's the P I N demick we've.
<unk> help customers source everything interestingly for wood pellets to P. P E.
While we expect each of our product offerings to grow the growth will not be linear and it will not be quarterly sequential obviously and then he'd given quarter one product during the other will be the star not all products will grow on any given quarter, but overall over the course of a full fiscal year, we expect each product to grow and importantly to contribute.
To the bottom line.
So we started a new fiscal year, we now have several things and place one we.
And we have three market, leading offerings interest synergistic and value, adding to the retail food industry and they each have significant cross selling opportunities across the board.
Each of the lines is independently attractive to our prospects in other words, we have multiple points of entry if you will into our customer relationship portfolio.
We've been extremely careful over the years to only grow as rapidly as we could deliver superb results to our customers.
[noise] obsessive focus on execution will excellence with our customers is now paying dividends as they say.
We have a highly visible says revenue stream.
Which contributes far more and covers more than our fixed costs and enables us to have consistent now profitability and cash flow and we have the strongest balance sheet and our history and this is all on display and the first quarter. We grew all three product lines. We grew consolidated revenue.
More than tripled on net income we generated significant cash and we bolstered our balance sheet. We're very proud of this progress and we certainly hope you are as well.
As John said, the pandemic continues to present challenging circumstances for park city and our customers that said, we're very fortunate that we serve the grocery supply chain as this segment of the retail industry yourself that much better than others and retail.
Prospective customers do not lack for ability to survive.
But ability to focus interestingly the pandemic is expose the weaknesses of the supply chain, making us ultimately and increasingly valuable partner to our customers.
And the interim market places emerge does it critical part of our platform.
As you can imagine finding trustworthy compliant vetted suppliers, there's been a tremendous challenge for the retail food industry. As a result marketplace contributed significant transactional revenue Todd top line this quarter, and the second and such quarter and a row.
The industry dynamics that serve as long term secular catalyst for us have not changed if anything they've been reinforced and fact market places, enabling messed and move out of our traditional industry sector retail food grocery changed and their distributors and suppliers.
Potential customers and other verticals, we're reaching out to us and even more interestingly, we've received inquiries from state governments and multi state procurement consortiums seeking to utilize market place to help them stores critical items like P. P E and other emergency supplies and the near term, they're looking to address the pandemic.
However longer term and just likely will allow us to help these agencies deal with natural disasters of all sorts and then the other urgent need that they might have.
At the same time, we do remain focused on increasing the recurring revenue for market place.
Subsequent to the end of the quarter, we completed and agreement with a leading grocer to utilize marketplace to source and purchase local produce for it stores.
The localization trend continues to be a strong catalyst for grocers and our marketplace Seleucia will help enable this particular grocer to stock produce from local farms and each location.
This will prove to be an excellent reference and use case and other words, we think this idea has legs.
So in summary, we're well positioned depend demick will continue to make things more difficult certainly is slowing decision, making down and it's impacting on nurture and visibility, but we should nevertheless continue to grow our top line and grow our bottom line, even faster generating cash and bolstering our already strong balance sheet complain.
And as we mentioned and her last call remains critical but perhaps less urgent.
Retailers focused on keeping employees and customers safe are temporarily putting compliance needs to decide and that extends our sales cycle that said however, our pipeline for both tier one and tier two hubs is excellent and there are and new regulations being proposed at the F. D. A that should further increase the need for what we do and the law.
Longer term.
In terms of the our supply chain services retailers are exploring ways to make the supply chain more resilient to meet future challenges and this and turn creates more opportunities for us and our offerings.
Our scan based trading solution continues to play a very important role and managing inventories and increasing and working capital and addition, our sales pipeline for are out of stock golfer and continues to grow and we expect this product to contribute to both are top and bottom lines. This year and in fact, we recently came to an agreement too.
Expand on how to start work with one of our larger complaints hubs and that is in our view and example of cross selling and we think that'll accelerate also overtime.
So all and all I Love, where we are and I hope you do as well with that I'd like to open the call for questions operator.
Thank you we will now be conducting price you need just asking if you'd like to ask a question. Please for starting your and your telephone keeping a confirmation total indicate your line and and the question for you.
If you'd like to remove your questions and they can start.
Start to party and hidden Speaker, Quinn, maybe pick up and handset b for Britney Snarky.
Our first question comes to mind on this morning would be David. Please proceed with your question.
Great So Randy and John how for staying well. The first question I had was can you talk about the financial health of your core customer.
And can you talk about the financial health of your competition.
Oh good.
Great question, Thanks, Tom and.
I guess more indirectly said should've been more straightforward.
Retailers at this moment and time are doing extremely well financially.
They have as much business as they can handle they've gone past their breakeven, they're all from what we can tell and good financial shape.
Their suppliers and.
And if you and number of our tier two initiatives and whatnot tends to focus on the suppliers are not in as good a shape, but it's not that they're in bad shape. It's that they tend to be paid a little bit slower by retailers and was the case before and some cases some of their products are selling a little bit more.
Slowly because not as many people are coming into the stores. So if you were a traffic dependent vendor you have not prospered as much doing COVID-19, having said that everything that we're doing our receivables are in good shape, obviously cashes in good shape.
A couple of the people that we see competitively are not doing very well we have one company that we compete with I, obviously don't Wanna, either gloat or even talk about it and depth is experiencing some financial difficulty Ah that's helpful to us on.
Balance sheet is our calling card we want our customers to be confident the deeper they get with us the board. They depend on this board they depend on this potentially the more nervous they would become if we were not financially strong. So it's a virtuous circle. Good question. Thank you.
Alright, so that is a follow up question.
It seems that.
Wow.
And are not saying that we're going into the shelter and place Lockdowns. We were in earlier this year.
There seems to be some element lockdown.
And when I think about.
Retailers.
They may start limiting the number of products consumers can buy so to the extent you talked beautifully about how you've helped.
With marketplace get anything from P. P any.
Two other.
Products and.
And now that I guess this is kind of our second cycle.
<unk> do you feel like you have more visibility and.
And is it possible you'll get more mandate for marketplace as a result.
Yeah, right now with a carefully managing the use of market place and what I mean by that is that desire for us to act on behalf of a retailer to help is greater than we are willing to fulfill so we are cautious.
Lee expanding market place, we indicated that this summer would involve a great deal of introspection around marketplace and its future. Obviously, we believe that it has substantial upside and opportunity. We've recently added to the.
Staff senior staff of market place, which means we're making commitments I think we now know enough about it and it's processes that we're very confident that it has it has the kind of legs that we had hoped for.
Important to remember that we are simultaneously trying to expand the recurring revenue use of market place and.
And we think that clearly has legs also so we're pretty excited about how we stand currently I'm not sure. We have a long term view as to whether the products that are being source. The day of the products and it'd be sourced a year from now, but our business and <unk>.
Variance is because of our operational excellence focus is that when someone tries us for something they know that we do a good job, but you don't even have to convince some of that so it's not too hard to go from let's say P. P. E. We helped you with your gloves now it shouldn't we be talking about some other.
Things that you're having difficulty sourcing we really believe that's the path forward I'm, hoping that by the end of the year or fiscal year that we will have moved past the short term stuff in terms of Covid and people will begin to try us to find things other than what today and and.
Emergency they need so even as supermarkets begin to restrict how purchasing is done the the merchants inside of supermarkets need for us is growing and.
We are limiting what we're willing to do at the moment to make sure that we're successful, but so far I could not be more proud of the team and how they've executed. This it's really.
It's a beautiful thing to watch so we're in a fascinating position where.
On the basis of our existing business, we're very profitable very positive cash flow and able to do a little bit of experimentation that I think open some doors to a significant growth for us and market place. So we feel really good about how the world is looking at.
Covid, what the potential reductions and consumer behavior through limitations are likely to be and there's clearly now light at the end of the tunnel. So I think everybody's beginning to plan and behave that way and that's certainly good for us that's very good for us.
Excellent alright. Thank you for question, if you'll indulge me the first of course.
On line grocery.
Is you hear every day here about the growth of online grocery and now.
Now on line grocery and many instances and just buy on line pick up and store for by on line pick up and store parking lot.
So what does online grocery mean for your company as far as an opportunity.
Okay. Another good question. Thank you.
We play and interesting role one that we're experimenting with now and we also think this has legs.
Supermarkets have a great deal grocery and has a great deal of difficulty maintaining perpetual inventories on fast turn and Ah direct store delivery kinds of items like milk and eggs and things like that they just have a lot of difficulty with it which means.
And that if you're a consumer and you go online to try and buy one of these items and for those of you who've done. It you get a text message from instant card or whoever the picker is and the stores, saying dude.
They don't have that how do you feel about this and other words the substitution rate is painfully high I've seen numbers as high as 30 and 40 per cent. It slows down the pickers reduces productivity for the supermarket and frankly become sort of a pain in the neck for the person doing the ordinary and it's never a clean order.
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So by maintaining a better level of perpetual inventories. We think we can be of help we are currently doing a pilot.
With a major NASA merchant chain and you asked one of the largest.
Where we are maintaining those inventories for them and then passing them to their on line systems. So that when someone goes to order the odds of knowing and it's really.
On the shelf.
Goes up significantly so far the customer doing this is seen sales increases of 30 to 50 per cent on the items that we track for them.
Could be a fluke, we don't think so.
So as time goes on and we expect that that part of our business and on line grocery has a really interesting opportunity, but it is it's in our wheelhouse is something that we can help with because and out of stock. If you don't go in the store is really much worse and other words as a human being.
And you can go into a store and and you take a look and I want two per cent milk half gallon. They don't have any but because you're human bean and your mind goes really fast you can see that they have courts of two per cent or a different brand and you're going to get and you say Oh Hell I'll take this.
The problem is if you specify it in and order and the picker is in the store picking it not you you're gonna have a whole different interaction with that human being over the product that you wanted so substitution is a really terrible for the supermarket and the customer experience Tara.
Double for the consumer period, and we think we can help with that.
So that's one area, where we can play a role and that whole on line grocery business.
Great and then my last question is for John So John you've done on an excellent job managing expensive. During Covid can you explain on the other side of Covid when that is how much of the cost savings or sustainable and how much of it is returns as far as you talked about traveling.
And a conferences and and things of that nature.
Sure I mean, I I don't know when the new normal will be but currently for the foreseeable future. We're not doing the travel that we're doing.
But a Randy and I had gone line item by line on them and looked at and less about the you know COVID-19, but more about you know R. O Y what are we spending so there's two buckets. There's COVID-19 related and then there's also what makes the most sense for the company as far as expanding our business and so.
Travel come back at some point of course, but I do believe you know will exceed the hundred thousand dollars a month as far as what our expenses are what travel will be you know we've we've planned for that but we're still committed to that $100000 per month. If you look back at 230 2021.
Great and Randy and Johnny Walters and Yeah, Yeah, Yeah, Let me give you one another insight in percentage terms more than 90 per cent of the cost reductions that we've done our cost reductions that have nothing to do with COVID-19 per.
<unk> and that of Covid comes and goes away and it comes back doesn't make any difference the only one that really stuck and there is travel so.
With that at this moment and time, we've made structural changes to the business consistent with technology investments that we've made over the previous few years and the next few quarters. You can you hear us talk more about that cause there's some exciting things coming on the internal technology for adults. So.
Wonderful I look forward to hearing that what day.
Thanks for taking all my questions I appreciate it.
Thank you thanks.
Thank you ladies and gentlemen, this concludes our questions and answers.
And went back to Mister fields for any final comments.
Operator. Thank you. We appreciate everybody you're spending time with this this afternoon as I mentioned and and my part of the presentation, we feel really good about where we are.
And I suspect all of your shareholders are getting and enjoy the company's performance. This year. So relax stay out of trouble with COVID-19 be safe and we'll talk to you. All soon thank you.
Thank you. This concludes need kind of think he needed can make your lines and the time. Thank you for your participation.