Q3 2021 Park City Group Inc Earnings Call
Okay.
Greetings and welcome to the Park City group fiscal third quarter 2021 earnings call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad.
A question and answer session will follow the formal presentation to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.
It is all of my pleasure to introduce your host Jeff families with F. N K I R. Mr. Stanley you may begin.
Yeah.
Thank you operator, and good afternoon, everyone.
And for joining us today for Park City group's fiscal third quarter earnings conference call hosting the call today are Randy Fields Park City Group, CEO, and Chairman and John Merrill 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 the private Securities Litigation Reform Act of 1995.
Forward looking statements are statements that are not subject to historical facts such forward looking statements are based upon current beliefs and expectations of Park City group management are subject to risks and uncertainties, which could cause actual results to differ from those mature those forward looking statements such risks are fully discussed and the company's filings with the securities and exchange.
Commission the information set forth herein should be considered in light of such risks Park City group does not assume any obligation to update the information contained in this conference call. Shortly after the market closed today the company issued a press release over viewing the financial results that will that we will discuss on today's call investors can visit the Investor Relations section.
The company's website at Park City group Dot Com to access the press release with all of that said, what the I'd like to turn the call over to John Merrill John The call is yours.
Thanks, Jeff and good afternoon, everyone.
Q3 was another strong quarter for the company. We continued our focus on growing our recurring revenue expanded our product offerings delivered solid profitability and drove cash.
Highlights of the quarter ended March 31 are as follows.
Recurring revenue for our SaaS business, which includes compliance and supply chain was up 13% to $4.57 million.
Marketplace revenue grew 225 per cent to 1.4 of $5 million.
With the cross the board growth revenue increased 30% of six points here of 2 million.
SG&A expenses increased 11% against the 30% revenue for us.
Net income increased 184 per cent.
Year to date cash from operations surpassed 335 million and.
And our balance sheet remains strong with $23 2 million or approximately $1 19 per share and cash.
The bottom line is we have built a scalable profitable and growing business made up of two components of recurring SaaS business and of transactional marketplace business.
We continue to drive both components with a modest SG&A cost structure, which enables us to grow our bottom line faster than our top line.
After two years of transitioning from significant lumpy, one time revenue and our mix our software businesses and effectively all recurring.
Simply put it is comprised of various food safety compliance and supply chain modules sold on a monthly subscription basis.
While we solve complex business problems, our business is relatively straightforward.
Let me take a minute to add some clarity on how management views the business and perhaps help you develop a line of sight of how we may look going forward.
With our third quarter of fiscal 'twenty, and 'twenty, one results, reflecting $4 5 million and recurring revenue, we internally of sign that run rate as our base and the software business out for the next four quarters.
Therefore of next 12 months of base of recurring revenue was 18 million and assuming no additional growth.
Since we are experiencing very low customer attrition and we're effectively at 100% recurring revenue and we are of a sales team compensate and growing recurring revenue beyond the base. Our SaaS revenue is highly predictable going forward.
This line of sight that that's the goal of 10% to 20% year growth rate.
Conversely, before the transition from license to SaaS and recurring revenue was less than 13 billion per annum and topline revenue and was highly dependent on generating $5 million to $7 million a year and a one time license of surfaces.
Predictability on revenue spending and bottom line was a challenge the say the least.
So over the last several years of our recurring revenue has grown from about 13 million to about $18 million on a run rate basis not bad.
To get a sense of what managements goals are you can compound that $18 million run rate at the lower end goal of 10% for the next few years.
I believe it is important to point out we are not a quarterly driven company Y as we of seasonal customers that they only need our services for three to six months for the summer or during the holiday season, not a lot, but its impactful that affects quarterly subscription revenue.
Our sales staff is paid on collections, so that impacts timing of expenses than there is noncash items like depreciation and stock comp and other accounting items that may create timing differences.
These are a few examples so when we talk about goals their annual goals some quarters higher some lower.
You are investors ask us how we can make the business easier to understand and model now you have a line of sight.
What about profitability and cash.
Since we operate our fixed costs on the modest spend roughly 12 million per annum and cash and we see the $18 billion and recurring revenue, it's relatively straightforward plan, our software bottom line expenses and cash flow.
And as I've said before about 80 to 85 cents of any incremental revenue over the 12 million base from the software business falls to the bottom line.
Because we know our fixed costs, we are able to support higher revenues without meaningful increase the store SG&A line. This is not fuzzy math the proof is in the numbers.
Let's talk marketplace for a moment.
As Randy and I have said in prior calls marketplace may or may not habits place and the company portfolio of long term, we're certainly not there yet.
And the meantime, and its transactional revenue, albeit highly unpredictable it does fill of customer demand and roughly provides of 10% contribution margin.
It's not the software business at north of 80% margin, but it does meet the customer demand. Despite its long term uncertainty and lower margin.
Marketplace case and point.
During fiscal 2020, one as COVID-19 disrupted supply chains and generated shortages of products around the globe our ability of source hard to find items will join our network of 25000, plus customers resulted in an unprecedented demand for personal protection equipment or PPE.
These products, including nitrile gloves, and ninety-five mask freezers telecommunication devices and other emergency management equivalents.
Our customers demanded it and we delivered through marketplace.
While market place of revenue is at a lower gross margin than our SaaS revenue and it provides incremental revenue profitability and cash flow to the company.
Well, we have experienced a significant increase of marketplace revenue from P. P E. During fiscal 2020. One it is uncertain whether demand for PPE will continue at what level and the future.
Pandemic begins to abate.
At this point, it's anyone's guess.
Given this uncertainty we are evaluating options, which may include a subscription based membership to the marketplace and network similar to an Amazon Prime.
Buyers and sellers would pay of recurring membership fee to have access to the network should buyer and seller transact business on the marketplace platform of the charge a fee on that transaction.
While the pandemic has extended the sales cycle, the 30% growth and the quarter demonstrates that our customers are increasingly focused on both of our software and our marketplace solutions.
The pandemic also spotlighted, the importance of more effectively managing supply chain and customer compliance.
Customer suffered from severe shortages and out of stock situations, leading to mis revenue opportunities and pushing customers to online retailers and.
As a result, we believe there is significant pent up demand for software solutions as things begin to normalize.
And as I've said before we of less than 5% penetration with our existing customers. So the farming our own customer network remains top priority for opportunity.
We can significantly grow our software business just by farming our existing network.
To summarize we have a combination of solutions that enables customers to be compliant and provide more actionable visibility into their supply chain replace vendors and so it's hard to find items more now than ever before we are an important resource for our customers simultaneously driving company revenue growth profitability and cash.
Turning to the quarterly numbers.
Fiscal year 2021 third quarter revenue was 6.02 million up 30% from $4 six 3 million and the same quarter last year.
The increase and total topline revenue reflects growth from both our recurring software business and marketplace up 13% and 225% respectively.
Total operating expenses increased 27% from $4 4 million and Q3 2020 to $5 3 million and Q3 2021.
The increase and total operating expenses reflects largely a $1.3 million increase and cost of goods sold associated with higher marketplace revenue.
Sales and marketing expenses decreased from $1 7 million and Q3 2020 to $1 2 million and Q3 2021.
This 32% decrease was the result of lower sales travel trade shows and cost reductions, partially offset by higher commissions due to higher revenue.
G&A cost increased modestly from $1 2 million and Q3 2020 to $1 3 million and Q3 2021.
This was primarily the result of and increase and higher liability insurance costs, and an increase and the reserve for doubtful accounts.
We have not experienced the significant customer default. We believe it is prudent to increase our reserves given some delayed payments we have received.
For the third quarter of fiscal 2021, GAAP net income was 773000 or 12, 8% of revenue versus 272000 or five 9% of revenue.
Net income to common shareholders was 627000 or three per common share versus the 125000 or one cents per common share and the same period of fiscal 2020.
Turning to the year to date numbers.
For the nine months ended March 31, 20, and 21 total revenue was $16 14 million compared to 14.2 dollars 7 million from the same period of fiscal 2020.
The 15% increase and topline revenues due to both subscription revenue and marketplace revenue growth.
Year to date recurring revenue growth and the software business was 8%.
Marketplace of year to date growth was 95 per cent.
Cost of services and product support was $6 7 million and $4 6 million for the nine months ended March 31, and 2021 and 2020, respectively, a 45 per cent increase.
This increase was primarily the result of higher costs associated to marketplace and the sales of PPE and to a lesser extent cost of boost our it security update and licensing and other database systems.
While we have experienced a significant increase of marketplace revenue and costs during the pandemic due to demand of PPE and it is unclear of what level of ongoing marketplace costs. We may experience at the pandemic begins to abate.
Sales and marketing expenses was $3 6 million and $4 5 million for the nine months ended March 31, and 2021 and 2020, respectively, a 19% decrease.
The decrease was due to a reduction of trade show expense lower all lower overall sales and marketing expenses, particularly travel expense.
G&A expense was $3 6 million and $3 5 million for the nine months ended March 31, 2021, and 2020, respectively and 1% increase.
G&A expense increased year over year due to an increase in bad debt expense and higher insurance costs.
These increases were partially offset by lower general overhead due to cost cutting measures and natural reductions due to our work from home status in April of 2020.
And the nine months ended March 31, and 2021, GAAP net income was $2 $95 million compared to $1. One 1 million for the same period in fiscal 2020.
This 164% increase and net income is due to an increase and total revenue and lower SG&A expenses.
Year to date and fiscal 2021 net income to common shareholders was $2 5 million or <unk> 13 per common share compared to 674000 or <unk> <unk> per common share for the same period of 2020.
Turning now to cash flow and cash balances.
The fiscal year, 2020, one we generated cash from operations of $3 4 million compared to $2 3 million and the prior year period and increase of 48%.
Total cash at March 31, and 2021 was $23 2 million compared to $20 3 million at the end of fiscal year 2014 per cent increase.
Total cash at March 31, 2021 was $23 2 million compared to $17 9 million at the same period, and 2020 and increase of 30%.
With respect to our stock buyback program as.
As we said during the height of the COVID-19 pandemic, we made the prudent decision to halt our buyback program.
And our March 31, 2021 quarter, we decided to recommence the program.
Subject of NASDAQ rules, we purchase of 84000 shares of common stock for total of $508000. During the March 31 2021 quarter.
As our business and its current and future cash flows have increased their visibility and likelihood of the board has decided to increase the size of our buyback moving the commitment from 4 million to now $6 million.
We believe our stock given the predictability of the business continues to be a very very good investment for us.
Thanks, everyone for your time of day and at this time I will pass the call over to Randy Randy.
Thanks, John.
To repeat.
Remember that our plan from a couple of years ago included the following reduce one time revenue and our software business and drive profitability.
GAAP profit not imaginary non-GAAP profit and growth cash. So here, we are virtually no one time revenue and our software business millions and onetime revenue replaced with recurring revenue and much more cash.
The result is improved visibility as well as strong GAAP profitability and cash flow.
We've now reached sufficient scale.
With the very modest fixed cost base of clearly positions us for sustainable and growing profitability.
You saw that this quarter as our net income more than doubled in fact nearly tripled.
And the 30% revenue growth.
Now you know our focus profits.
Profitability and cash generation, we're in the early.
The company today once again, let me remind you we're not.
Quarterly company, our trends will be growth and annual revenue that we can be proud of and simultaneously much faster growth of earnings and cash flow.
Pandemic continues to impact our business, but perhaps not and the way you might think well the sales cycle for our compliance and supply chain solutions has been along David This has been offset by urgent demand from our marketplace offerings and as customers struggled to find hard to find products and.
And while customers are putting out fires, which is the reason for the elongated sales cycle. They are certainly well aware of the sourcing and supply chain challenges that impacted their business over the last year or so and this is driving increased interest and our SaaS offerings, including the new out of the stock solution.
They may have to extinguish fires, but they know no more than ever that they do in fact actually need us and our solutions. We've added some exciting new modules of functionality of the three legs of our stool.
Our marketplace supply chain and compliance offerings are proven and certainly at scale.
Although we continue to have very significant growth opportunities within our existing customer base in other words in most cases, even with an existing product were not yet fully deployed that means more revenue ahead and for us.
We've added and out of stock solution of module of our supply chain offering which helps retailers identify shortages and the dress stocking issues and advance of their occurring.
We've entered the quality management space with a proprietary smartphone app that enables retail trading partners to automatically monitor their internal safety quality of record keeping and easily accurately and frankly affordably.
And most recently and this is important we announced the formation of the food Traceability leadership consortium or as we call. It the F T L C.
To help food retail industry leaders and collaborate on the development of the low cost easy to use food tracing technology the <unk>.
<unk> is an invitation only group of food retailers wholesalers and select suppliers.
The goal is to establish industry standards best practices and to develop of technological solution to address the most recently proposed F. D. A food traceability regulations, essentially we're working with leading companies and thinkers and the industry and to develop a system the achieves the fda's new.
The proposed requirements and then economic fashion.
Or it could be very important for the industry and therefore for us more about this as time goes on.
In the meantime.
We have built the largest database of compliant suppliers and fact likely the largest database of food industry suppliers period, we've proven our important story of customers, we're helping them navigate and these unprecedented times our marketplace solution has helped them secret of products from vendors and suppliers when others have been unable to provide products at all and all.
Out of stock solution has helped many customers keep their products on the shelf.
We are leveraging our leadership position and each of these areas that even more capabilities to address the evolving needs of our customers and the goal of therefore is to make us inherently more valuable and important to them.
We offer and end to end supply chain solution for our customers enabling.
Dumped to source suppliers.
That suppliers and then transact business all in one complementary solution I don't know of and the other supply chain company that does all of this.
Now to the basic and and supply chain capability and the fact that it's currently in place we're going to focus on adding new modules and think of it as new capabilities and therefore more revenue per customer and simple.
And we're just beginning to approach our customers and this way.
The sales and operational leverage that the strategy provides us already and parent and our numbers and the way more to come.
Today, we enjoy a highly visible SaaS revenue stream, which more than covers our fixed costs and.
And the enables consistent we call it structural profitability and simultaneously, we have and the strongest balance sheet and our history.
Over the last three years, we have grown cash at just under a 20% CAGR, while simultaneously buying back $3 million and stock.
And.
We replaced millions of one time revenue.
So that our recurring revenue has grown grown from about 13 million, two and $18 million annual run rate and that same period of time, we're certainly very proud of those accomplishments.
Our focus now is working to expand our customer relationships and the related and the associated obvious revenue per customer and we're doing it in two ways first by adding the additional modules to our existing applications more solutions to the same customers further integrate neatness into their operations.
And the out of stock offering is an example of this.
Our quality management services offering is another example, and.
And then secondly, we want to cross sell different application suites, increasing the monthly revenue again from each of our customers and adding important incremental value is.
As John said, we penetrated less than five per cent of our existing customer base.
In terms of our successes and our cross selling we actually have an excellent example of we can share one of our largest compliance customers early this calendar year higher desk for out of stock management system.
I actually did that because in very experience are working compliance management was exemplary the.
And actually have touted our capabilities to others. So it was not very difficult to go from we're really good at this to you ought to try that and that's what we did.
The result were now exceeding both ours and more importantly, their expectations of our success in both compliance management and now of supply chain Wow homerun sales up out of stocks down by large double digits and some of the suppliers participating and this are already talking to us about taking this.
The additional retailers.
Exactly what we wanted to do more of.
And the interim marketplace continues to be an important platform during the pandemic.
And is incredibly hard to find trustworthy compliant suppliers, especially from the things that are in short supply like P. P E personal protection equipment et cetera.
Marketplaces solve many of these challenges contributing significant transactional revenue to our topline. This quarter. This contributed to revenue growth for us and the quarter, but as the pandemic abates and focus returns to our subscription offerings that we provide we expect marketplace revenue growth to moderate and our business will shift back.
Two of greater extent, and our recurring software offerings, but while that's happening.
We would expect our net income to continue to grow.
We've said many times our profit growth is.
Is untethered from the growth of the marketplace to be short lived.
Experienced the significant increase in our marketplace revenue from P. P E. During the height of COVID-19, but it's certainly unclear of what level of marketplace demand for PPE et cetera are we may experience as the pandemic abates.
The industry dynamics that serve us long term secular catalysts for us have not changed at all and anything they've been reinforced consumers.
Consumers are far more concerned with problems that our supply chain business solve such as out of stocks and simultaneously. The F. D. A is moving deeper into regulating the flow of goods and food now mandated and track and trace for the first time use of both right in our wheelhouse.
Our annual run rate of the Crane revenue is we believe going to grow within our targeted range of 10 to 20 per cent. This year and our expected exit rate. This June nearly locks in our growth goal for next year as we look out we feel very comfortable with the growth and revenue and even faster growth and the bottom line that we can see.
So in summary, we're in an excellent position with very strong the crane revenue synergistic transactional revenue consistent profitability and a strong balance sheet.
We expect to be able to grow our topline while expanding our bottom line and a more rapid rate, we will generate sufficient cash to both add to our balance sheet and continue our stock buyback program.
The job of replacing of millions and onetime revenue with recurring revenue is complete with virtually no one time revenue and of our sulfur business as of now.
The growth rate of recurring that replaced the one time revenue remains so that we anticipate being a much larger company over the next few years.
As John discussed key component of our shift to recurring revenue is greater predictability.
Our shareholders ask us for greater visibility into our results and expressed the desire to more effectively model our business as managers. We also wanted more predictability where now there are.
Our business is now dominated by a recurring revenue stream and provides annual line of sight to ours results. So.
Today, we have of run rate of about $18 million of recurring revenue up from 13 million and just a few years ago. This is a baseline.
So as we begin fiscal 'twenty 'twenty two in July of this year with recurring revenue of 18 million.
We expect to grow our recurring revenue by 10% to 20% each year compounded.
Our cash expenses are about 12 million annually, increasing slightly as we grow due to higher sales and marketing costs like commissions et cetera.
So it's fair to think of and 18 million recurring revenue business growing at the 10% per year of compounded rate that has a relatively fixed cost structure cash based of about $12 million.
As John mentioned 80 per cent of the revenue over that fixed cost base becomes income and cash. So now you can run your own numbers going forward some quarters will be above this trend and some below some costs will be lumpy, but year in and year out. This is our goal grow our topline at this predictable.
Right grow our bottom line and a much faster rate drive cash and we hope and we believe the market will reward us for this predictable earnings growth rate.
Shareholders expressed the desire to more effectively model isn't and have better line of sight that you have it. Our model is now very simple very straightforward and frankly very compelling you can see that and the numbers we reported today.
So with that I'd like to now open up the call for questions operator.
We will now begin the question and answer session.
A question you May Press Star then one on your telephone keypad. If you are using a speaker phone. Please pick up your handset before pressing the keys if at any time of your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Tom Forte with D. A Davidson. Please go ahead.
Great. Thanks, So Randy and John and I have three questions weighted.
The time.
The first question I have is you talked about.
Okay sing a long dated sales cycle.
And so I wanted to know if there's a difference.
As far as the current state of your customer distraction and.
And those markets that of reopening faster, such as Florida and Texas.
The rest of the U S.
Well the that's.
And that's it and that's an interesting question and what we're seeing so far is that the industry is just waking up in other words without any geographical limitations, we are seeing more interest more conversations at it.
Not fair to say things are back to normal whatever the hell that is from 18 months ago, but it is fair to say that it's easier to get the people were and are more deeply engage more projects are.
Looking like Theyre getting scheduled and now its showing up and our revenue. So I don't think we can say.
With any certitude that it's a function of the states that are opening up so much as remember supermarkets have been open and are doing a incredible business really for the last the.
Period of time during COVID-19.
So it's just that they were distracted trying to keep product on the shelf.
Second question right.
And second question I wanted to talk about your build versus buy strategy as it pertains to you of products and services, you're offering and potential M&A.
And with geographic expansion.
Okay and another good question.
As a rule, we preferred to build things because we have a proprietary development environment and a fabulous team of people World class that had been with us for many many years, so it's pretty easy for us to add to our existing platform of.
Additional functionality. So overall, we're inclined to do it however.
We are and our cash position allows us to be interested.
Interested in M&A activity.
And we do look at those things that are presented to us and and and that the most interesting opportunities are companies that are likely in a different industry not retail food and we are in so we could take our platform with people who are experienced and.
Two other vertical markets. So absolutely we do look at the M&A, but it's there's nothing that Ah is hot at the moment.
That's the third and final question Randy It's true.
And when I think about your now steady revenue and your cash flow generation I'm curious what your thoughts are and the.
Potentially of considering a private equity.
So it's all of them to a private equity firm.
Another interesting question I think it's fair to say and for reasons, we're not sure of we've had and.
A number of inquiries from interested parties and the last few months.
We have an obligation to examine those all seriously.
And obviously, if there's ever of need for us to make a regulatory disclosure of because of the.
The status of the of the possible transaction, we certainly will we think the stock is attractive that's why we're expanding our buyback. So it's probably not terribly surprising that others are finding us attractive at the moment.
So I don't have any news per se, but yeah I think of.
It's fair to say we've attracted.
A reasonable amount of interest at this stage.
Great Manny and John.
My questions.
Okay. Thank you.
Thanks, Tom.
This concludes our question and answer session I would like to turn the conference back over to Randy fields for any closing remarks.
Well, we appreciate everybody taking the time this afternoon and we've worked hard to create a company that is I think easier to understand and certainly easier to forecast.
And from where we are of things.
Feel very very good we like the fact that we've created a structurally profitable business given our relatively small size of.
And we've been very successful with our customer set and feel.
And that the next several years, we're going to grow into the kind of a company from the size perspective that all of us would like to have so again, we're ready any time to answer questions and we appreciate your taking the time this afternoon and thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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