Q4 2021 Park City Group Inc Earnings Call
[music].
Greetings.
Park City group fiscal fourth quarter, and full year, 2020 one earnings call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
Once you require operator assistance during the conference. Please press star zero telephone keypad.
As a reminder, this conference is being recorded.
Now I'd like to turn the conference over to your host Rob Fink.
Thank you operator, and good afternoon, everyone.
You for joining us today for Park City group's fiscal fourth quarter and full year earnings conference call.
On the call today are Randy Fields Park City group's CEO, and Chairman and John Merrill Park City group's 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 995.
Forward looking statements are statements that are subject that are not subject to historical facts such forward looking statements are based on current beliefs and expectations.
Park City group management are subject to risks and uncertainties, which could cause actual results to differ materially from those forward looking statements.
Such statements such risks are fully disclosed in the company's filings with the Securities and Exchange Commission.
The information set forth herein should be considered in light of such risks.
Citigroup does not assume any obligation to update information contained in this conference call.
Shortly after the market closed today the company issued a press release lease over viewing the.
Financial results that will be discussed on today's call.
Investors can visit the Investor Relations section of the company's website at park Citigroup Dot com to access this press release.
With all that said I would now like to turn the call over to John Melo, John The call is yours.
Thanks, Rob and good afternoon, everyone.
We continue to execute on our stated strategy delivering another profitable quarter and Europe growth.
We've established a profit oriented business model with significant recurring revenue low fixed cost and a growing operating margin.
Our business is now easier to model and on an annual basis, we have significant confidence and consistent growth.
Each incremental dollar from here largely fall to the bottom line, meaning our profitability will grow substantially faster than our revenue as it did in the fourth fiscal quarter and all of last year. This.
This yields a strong free cash flow.
Highlights of the fiscal year ended June 30 are as follows.
Recurring revenue for our SaaS business, which includes compliance and supply chain was up 11% to $24.0 million.
Recurring revenue as a percentage of total revenue increased from 80% to 84%.
Our annual recurring revenue run rate or a R. R. As of June 32021 was $22.0 million a baseline of recurring revenue for fiscal 2022.
Marketplace revenue increased 11% to $5.0 million.
With across the board growth total revenue increased 5% to 21 million.
SG&A expenses decreased 5% against the 5% revenue growth.
Net income increased 158% to more than $5.0 billion.
Cash from operations grew to $9.0 million up 29%.
And we ended the year with $24 million in cash or approximately $24.0 per share.
We have successfully built a scalable profitable and growing business made up of two components of recurring SaaS business and a 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.
Our marketplace offering has matured and its value to our customers has been proven, albeit with significantly less contribution margin.
In order to improve the margin of marketplace. We are planning some structural changes to how we go to market to bring its contribution more in line with our SaaS offerings in other words, we intend to convert marketplace from a transactional highly unpredictable business to a software as a service comparable to our compliance and supply chain offerings.
We were successful at converting $5 million to $6 million a year in one time license and service revenue to SaaS. So I'm confident over the course of time, we can do the same with marketplace.
In the meantime, marketplace remains largely transactional and unpredictable.
As mentioned our full year recurring revenue at June 30 was $24.0 million or annualized recurring revenue exit rate at June 32021 was $22.0 million for fiscal 2022 assuming no growth.
Our stated goal as we have said in the past is to grow recurring revenue by 10% to 20% per year.
Since we have experienced very low attrition and we're effectively at 100% recurring revenue from the software side of the business our base recurring revenue is now highly predictable.
Furthermore, our sales team is incentivized on growing recurring revenue beyond the base.
We operate our cash fixed costs of $12 million per annum absent marketplace.
It was $24.0 million in recurring revenue against $12 million in cash costs, we are structurally profitable company.
This is reflected in our $9.0 million cash generated from operations.
As I've said before about $80 to 85 cents of any incremental SaaS revenue over the $12 million base falls to the bottom line as we can scale, our revenue with very little incremental costs.
Marketplace on the other hand, roughly provides a 5% to 10% contribution margin if.
It's not the software side of the business at North of 80% margin, but it does meet our customer demand. Despite its long term uncertainty.
Our customers really like the service and we think a subscription model similar to what Amazon Prime will be well received.
To summarize we have a combination of solutions that enables customers to be compliant provide more actionable visibility into their supply chain replace vendors and so it's hard to find items more.
More now than ever before we are in an important resource for our customers simultaneously driving topline revenue growth profitability and cash.
Turning to the quarterly numbers.
Fiscal year 2021 fourth quarter revenue was $10.0 million down 25% from $13.0 million in the same quarter last year.
The decrease was due to lower transactional marketplace revenue.
At the height of Covid, many of our marketplace customers demand the nitrile gloves and masks.
It's the larger pandemic concern has abated over the last six months. So has the demand for hard to find COVID-19 related items again marketplaces transactional revenue highly unpredictable, but it does feel a customer demand.
Total operating expense decreased 35% from $8.0 million in Q4, 2020 to $7.0 million in Q4 2021.
The decrease in total operating expenses reflects largely a $2 million decrease in the cost of goods sold associated with lower marketplace revenue.
Sales and marketing expenses increased from $4.0 million in Q4, $2025.0 million in Q4 2021.
This 8% increase was the result of an increase in sales travel trade shows and other sales related costs of longer term COVID-19 concerns slowly continue to abate.
G&A costs increased from $5.0 million in Q4, 2020 to $7.0 million in Q4 2021.
This was primarily the result of an increase in higher liability insurance costs and an increase in the reserve for doubtful accounts.
As I have said in previous calls while we have not experienced significant customer default. We believe it is prudent to increase our reserves given some delayed payments, we received and given the ongoing disruptions in the supply chain are affected some customers more than others.
For the fourth quarter of fiscal 2021, GAAP net income was $3.0 million or 26, 1% of revenue versus 480000 or eight 3% of revenue.
Net income to common shareholders was $1 million or five cents per common share versus 333000 or two cents per common share in the same period in fiscal 2020.
Turning to the full year numbers.
For the year ended June 32021, total revenue was $21 million compared to $20 million last year.
This 5% increase in revenue is due to both growth and recurring subscription revenue and marketplace revenue.
Full year recurring revenue growth in the software business was 11%.
Marketplace growth was 10, 6%.
Cost of services and product support was $15.0 million compared to $7 million last year.
This modest decrease was primarily the result of higher expense associated to marketplace and the sales of PPE, partially offset by lower lower overall development costs, a reduction in outside consulting services and other cost cutting measures implemented in response to Covid.
While we have experienced a significant increase in marketplace revenue and costs during the pandemic due to demand and PPE. It is unclear what level of ongoing marketplace costs. We may experience a pandemic continues to abate.
Sales and marketing expenses were $5 million compared to $13.0 million last year, a 15, 6% decrease.
The decrease was due to a reduction in trade show expense lower overall sales and marketing expenses, particularly travel expense.
G&A expense was $7.0 million compared to $13.0 million last year, a five 4% 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 since April 2020.
For the year ended June 32021, GAAP net income was $5.0 million compared to $7.0 million for the same period of fiscal 2020.
This 158% increase in net income is largely due to an increase in revenue and lower SG&A expenses.
Fiscal 2021 net income common shareholders was $8.0 million or <unk> 18 per common share compared to 1 million or five cents per common share for the same period in 2020.
Turning now to cash flow and cash balances.
For the fiscal year 2021 we generated cash from operations of $9.0 million compared to $6.0 million last year, an increase of 29%.
Total cash at June 32021 was $24 million compared to $23 million at the end of fiscal year, 2020, and 18% increase.
With respect to our stock buyback program.
As we said during the height of the pandemic, we made the prudent decision to halt our buyback program.
We recommenced the program in the third fiscal quarter and continued our activity in the fourth quarter repurchasing 126927 shares at an average price of $36.0 per share for a total of $800000.
As our business and its current and future cash flows have continued to increase their visibility and likelihood the board decided to increase the size of our buyback by $10 million.
This takes our total authorization to $12 million.
So I have said before we believe our stock given the predictability of the business continues to be a very good long term investment for us and our shareholders.
Thanks, everyone for your time today and at this point I'll pass the call over to Randy Randy.
Thanks, John.
So to sum up the year, we grew our recurring revenue by 11% and more than tripled our net income to common shareholders, we generated more than $5 million of casually ended the year with more than 24 billion of cash.
Our annualized recurring revenue run rate at the end of the fiscal year was $18.4 million.
Which more than covers our cash <unk> expenses of $12 million and it should be noted that we achieved all of this during the most significant disruption of our lifetime a global pandemic.
The results again demonstrate the progress we've made in building the predictable earnings model of the company. Our model. We believe is the definition of sustained profitability and cash flow.
There's no doubt that the pandemic is continuing to impact our business. Our customers are once again battle lean supply chain issues and shortages.
Now they have a new challenge to face.
In the last call. We mentioned the proposed FDA food traceability requirements of the food safety modernization act or physical.
As a new and frankly burdensome regulation for our customers.
The new rule as proposed with aggressive deadlines and aggressive phase in period and very few exceptions in short the proposed rule imposes new requirements.
And those who manufacture process pack or whole foods on the food traceability list and requiring them to create and store literally mountains of records.
The effect of the rules to make compliance using paper based systems nearly impossible and simultaneously massively increase requirements for data retention and data exchange think literally tens of billions of new records.
Our core competency.
At the outset rule tool for as it's called.
We will only relate to certain high risk products and 15 categories things like soft cheeses produce and it doesn't matter, whether they're sold standalone or used as ingredients.
Nato's for example.
As products using these fruits vegetables et cetera moves through the supply chain. Each step that is required to add additional record keeping and door record exchange with other businesses and it supply chain.
It's also clear the F D. A intent to expand this initiative over time. The FDA has explicitly said they hope the concept is adopted industry wide covering nearly everything simply put the opportunity here is not just large but our customers need us to help and since we already do track and trace affordably in it.
Scale is part of our supply chain platform. This is right in our wheelhouse in fact, where the obvious vendor to address it we have the technology needed to do the record retention and data exchange we have the industry knowledge. We are the largest in place network of suppliers and your customers it's perfect and.
We're using our already developed existing platform.
Our plan for traceability is simple they get very low cost and very easy to adopt.
Make it a simple expansion of our existing compliance and supply chain off rates and short it's an add on to what we do now for our customers, but the industry needs. This soon and will have no choice, but to adopt some technology.
The current fiscal year will be about lining. This all up we anticipate little revenue from traceability in this year, but longer term, we expect that this initiative could add to our already expected topline revenue growth of 10% to 20% a year.
Uncertainty of the timing et cetera is obviously still there, but this is likely to be a win we are the experts in compliance we are exclusively endorsed by industry leaders and we have built the industry's largest database of compliant suppliers.
Are the ideal partner to help our customers address the challenge.
And the F D as urgent timeline it makes us a top priority for us for our customers and their suppliers people are concerned in fact, the presses and just didn't have a problem.
Incidentally that'll be a nice interview on morning, Newsbeat Tomorrow Wednesday.
Which is really kind of the food industry insiders daily update it's worth looking at.
We've made the prep and the rollout of traceability and all hands on deck priority.
There are some differences in our marketing strategy and execution strategy do we need to work on and we're organizing ourselves around that will.
Will this solution become an increasingly important part of our compliance offering.
Will it become a fourth leg of our stool time will tell.
But this will be the keep focus of our fiscal year and a possible driver for growth for us.
Yours to come.
To ensure we're getting proper focus on this product, we're taking a hard look at some of our legacy offerings at making some calculated adjustments, we're going to sunset one of our offerings that doesn't seem to have the upside potential of track and trace and we're slowly beginning to convert marketplace and door recurring subscription offering and faculty.
I already have a couple of subscribers so far and obviously, we expect more over time.
With all of these factors in mind fiscal 'twenty two looks very good from where we are right now our tier two initiative continues to see growth in our supply chain is also showing favorable signs of being a priority with our customers.
We do believe that we're on course to achieve our recurring revenue goal of 10% to 20% for fiscal 'twenty two.
Any worsening supply chain disruption in the global economy simultaneously. We've continued our focus on tight expense control because of our business model. Our bottom line growth will obviously be much higher than our topline growth.
After successfully transitioning virtually all of our software onetime revenue, we now enjoy a highly visible SaaS revenue stream.
More than covers our fixed cash cost this does generate a structural systemic and consistently profitable and predictable cash flow for us.
As a result, we've decided to repurchase even more shares specifically the board has approved a very significant increase in our current buyback up to an additional $12 million in shares in short, we're putting our money well you know the rest of <unk>.
Key goals for the next fiscal year or rather the current fiscal year are one to.
To protect the introduction of our track and trace solution to be ready for fiscal year 'twenty 'twenty three expansion.
Continue to work on cross selling to further deepen our relationships with our customers continued to add some additional modules to our existing applications.
The cross selling opportunities that we've looked at or are moving along our out of stock offering for example.
Is doing very well one of our largest customers that domain is just significantly expanded their work with us and finally, we're going to continue to generate additional profitability drive cash and buyback more stock.
In my view, we're in a great position for success in fiscal 'twenty, two and beyond and as the leader we're uniquely poised to help the industry address this new FDA challenge that in turn creates more opportunities for us so with that I'd like to now open the call for questions operator.
Thank you Yuval.
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One moment please poll for questions.
Our first question is from Victoria to James with D. A Davidson. Please proceed.
Great Hi, its Tom Forte off with Davidson.
Randy and John well. The first question I had for you is are you sort of talked about this Randy in your opening remarks, but can you give us a sense of the current state of distraction for your core customer or foodservice retailer.
Thank you Victoria.
The sorry, Tom I couldn't resist.
The obvious problem that you're reading about everyone has seen in supply chain is a distraction there's no doubt about it.
<unk> now is limiting toilet paper.
So there is a reality that our customers have to take care of their customers first and themselves second. So the question is how long will this persist. This is certainly not a new normal as in this last years, but I would imagine that frankly until spring or so.
There distraction should continue we've baked that into our view of the year.
And at the same time the F D. A concern with traceability is moving along in fact.
Reasonably speaking, it's probably moved as far as it has because people are distracted and witness a set of regulations was actually proposed last year and in 2020, I suspect the industry distraction with shortages et cetera.
Kept the commentary to the FDA at very low levels. So it's on its way it's going to happen. So people will just have to find the bandwidth to focus on it. So we've baked that into our forecast, but clearly the supply chain problems, you're reading about a real we see them everywhere.
Excellent alright, so I have a couple of more questions Randy right so that the.
The next one is I.
I think it's interesting that you're going to pivot marketplace.
More of a recurring revenue.
Model can we then assume that any new product introductions in the future will also have an emphasis on recurring revenue.
Oh, absolutely I think really there's two or three issues to think about where it not for this issue of track and trace which is gonna be enormous it's not just enormous in terms of opportunity, but the changes that it will create in the supply chain are unlike.
Anything we have ever seen.
We do not believe that the industry is ready for it we believe that the perturbations will be large.
And the scramble over time to be compliant do the right thing et cetera.
Is gonna be a real challenge for for our whole industry the largest industry in the world.
So given that.
I think our reality is that we just cannot focus on all of the things that we're doing.
So we took something that's that has great potential market place and we have to find another way to do it for the next period of time, maybe forever.
That requires less focus on our part just a little bit easier to execute simultaneously. We we have a product that we've successfully sold and implemented in the past that actually quite a good product and if we had infinite resource from a human perspective, it's not a cost thing is just.
The human part of it we'd probably pursue it but for now we're just going to walk away.
And you're exactly right. We're in the SaaS business. So going forward I think you'll see things that we do have that says.
Component to really enable us to keep one simple business model in mind.
Great Alright, so two more Randy so I'll ask one I guess and then I'll ask the other one.
So you mentioned Costco and if you look at cost of those last three quarters.
Raise their expectations as far as the implications of inflation.
Their results.
So how do you think about inflation affecting food retailers and then how far it therefore, it wouldn't affect our park City group.
Yeah the inflation.
I hesitate to contradict experts like chairman Powell, but it Ain't going away. Its now here, it's now been embedded it in the future look because of the cost pressures.
Are also there I think Paul may have been thinking about the monetary side of inflation well. This is gonna be cost push so I saw a recent example, where a year ago the cost of moving a container.
From Asia to let's say, New York pick a number it was like $2000 and that same containers today is $16000 theres a bit of inflation in that.
That means that everything that's inside that container is going to have to absorb that very substantial incremental cost.
So the fact is transportation costs are going up you can call it shortages doesn't matter.
So food is transportation intense intensive obviously those costs as they worked and we continue to work their way through the system are going to have to get reflected theres not much room in the food business to absorb cost increases, it's a low margin business and the and so the truth.
This as you watch the inputs go up in price you can expect consumer prices to tag along with it.
The implications for us are.
I'm really pretty much neutral in reality is inflation is generally not a strong negative in the food industry, they're fast turning items. So you have a chance to stock up at today's prices seldom soon at Tomorrow's prices. So it tends to help our food retailers.
I wouldn't want to be in the business of having slow moving products, but for the most part this is a fast moving business. So it'll generally be good for our customers things that are good for our customers. Therefore tend to be very good for us also.
Wonderful.
Last one and I can't think of any of the perfect way to ask this question. So I'll ask it in perfectly and so I apologize so one of the things that's.
Your company has done so well is enable your core customer to better compete against Amazon.
So when your core customer I guess is less afraid of Amazon.
Is that a net negative for you.
How should we think about the fear of Amazon and how well it's motivating your core customer right now to more warmly embraced technology.
And if that's if they're less afraid of Amazon and they've got a problem.
Well I'm not sure that it's any longer a fear of Amazon that began to recede released several years ago. The fear in the industry was is an aligned is going to be the way. The groceries are done in other words take Amazon out of the equation it was how.
Much online business are we gonna have to do how do we do that and now increasingly how do we do it and not have huge margin contraction, which in the 1% business you can ill afford.
Now mercifully, what's happened as much of the move to online this was driven by the obvious pandemic.
And that's going to recede a bit so I suspect.
That we're going to see the fear of an online this meaning it's going to take away from the core business for retailers.
Abate.
I think they're going to learn to make adjustments in the online world.
And frankly that creates what's called omni channel, which is really good for us.
A number of our customers do omni channel, meaning that they've got inventory issues that they have to manage on both the online side of their business in stores. There's a lot of complexity with that and we help them with that complexity. So I'm not sure that there's any real impact.
I don't think it's really so much Amazon driven as it is is the world going to suddenly shift completely to our online and how do we compete I'm sure you saw it but now Amazon is introducing delivery charges to whole foods. So much of what Amazon thought that they could do or what.
We imagine thought we're not psychic that so much of what we thought.
And feared from Amazon as an industry.
It turns out there's no magicians, there that the cost or the cost they don't have distribution advantages etcetera, and now they're finding obviously that delivering whole foods multiple times per week.
Two people include getting in prime doesn't work out economically so I think that the Amazon threat per se is less important.
Our customers are less fearful less fear is actually probably good for us on balance.
Excellent Randy and John Thank you for taking our questions.
Thanks, Tom Thanks, Tom.
Thank you.
Ladies and gentlemen, there are no further questions at this time I'd like to turn.
Randy fields for any closing remarks.
No I really don't have anybody to call on for questions. So we'll wrap it up and thanks, everyone for taking your time this afternoon.
Take care Bye bye.
Yeah.
This concludes today's conference you may disconnect. Your lines at this time. Thank you very much for your participation and have a great day.