Q1 2022 Park City Group Inc Earnings Call
Greetings and welcome to Park City Group fiscal first quarter 2022 earnings Conference call. At this time all participants are in a listen only mode shedding assistance. Please signal a conference specialist by pressing the star key followed by zero.
A question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Mr. Rob Fink with M. S. N K I R. Mr. Fink you may please begin.
Yeah.
Thank you operator, and good afternoon, everyone. Thank you for joining us today for park city groups.
First fiscal quarter earnings call.
During 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 90 95.
Forward looking statements are statements that are not subject to historical facts.
Such forward looking statements are based upon current beliefs and expectations.
Park City group management, and subject to risks and uncertainties, which could cause actual results to differ from those forward looking statements.
The risks are fully discussed in the company's filings with the security 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 information contained in this conference call.
Shortly after the market closed today the company issued a press release overview of the financial results that will be discussed on today's calls investors can visit the Investor Relations section of the company's website at Park City group Dot Com to access this press release.
With all that said I'd now like to turn the call over to John Merrill John The call is yours.
Thanks, Rob and good afternoon, everyone.
September quarter progressed as expected we delivered another reporting period with solid results, 10% increase in recurring revenue, 80% gross margins, 71% increase in net income doubled EPS delivered over $1 million in cash at the same time, we paid off all the company that $6 million.
Now with 97% our total revenue recurring we continue to provide an easy to model profit oriented business with predictable recurring revenue low fixed costs and growing operating margins.
I've said before each incremental dollar over our $11 million to $12 million annual fixed cash costs largely falls to the bottom line.
In other words, our profitability grows substantially faster than revenue.
This is reflected in the first fiscal quarter of 2022 and all of last year.
This provides us with strong free cash flow and in my view, the investor with better line of sight and predictability of results.
Highlights of the first quarter ended September 30th are as follows.
Total revenue decreased 13% to $4.6 million. This was due to lower marketplace revenue.
Recurring revenue for our SaaS business, which includes compliance and supply chain was up 10% to $4 $4 million.
Recurring revenue now represents 97% of total revenue.
Marketplace revenue decreased 91% to just over $100000.
Total expenses decreased 26% due to lower marketplace costs.
SG&A expenses decreased 3%.
Net income increased 71% to just under $1 million.
Cash from operations surpassed $1 million, and we paid off $6 million of debt.
Even after paying off the debt, we have 20 million cash in the bank or approximately $1 five per share.
Park City group is now a SaaS company, the transactional marketplace revenue, which created volatility in our quarter to quarter revenue and a drag on our margins is now shifting to the same SaaS model.
No different than converting $5 million to $6 million a year in annual one time license and services revenue to SaaS, which we accomplished this as our strategic decision for marketplace make it says.
This will take time as it did with the transition of other onetime revenue. However, this will enable us to focus on track and trace which represents the largest potential size opportunity we've seen.
It's a SaaS business, we are laser focused on recurring revenue deemphasizing transactional and sunsetting other noncore products and services. So that we were able to allocate resources towards a very financial rewarding opportunity traceability.
Our recurring revenue at September 30th was approximately $17 $6 million on an annualized basis, resulting in 97% of total revenue.
Our <unk> reflects our strategic decisions and assumes no continued growth, which is highly unlikely given our 10% growth in Q1 and stated goal of 10% to 20% per annum.
It should be noted that only a few short years ago recurring revenue was only $9 million and 64% of revenue.
The transition is complete.
Looking back our compounded annual growth rate Ortega was 14, 4% for the period.
Our CAGR for net income for the same period is north of 39% yes.
Yes, theres lots more to do but I am proud of what we've accomplished thus far.
As we have said on previous calls our cash cost of running the business absent marketplace, our $12 million per annum.
Note that our cash expense run rate decreased in Q1 and is approximately $11 $5 million per year down 4%.
Again about 80 to 85 cents of any incremental dollar over the 12 million base now of $11 $5 million in declining for the software business falls to the bottom line.
Both Randy and I have invested substantially over the years and internal automation process improvement and streamlining decision, making to improve productivity that is paying off now.
To summarize we have a combination of proven solutions that enable customers to be compliant provide more actionable visibility into their supply chain replace vendors and so it's hard to find items now on a subscription basis.
More than ever before we are an important resource for our customers simultaneously driving recurring revenue growth profitability and cash.
Turning to the quarterly numbers.
Fiscal year 2022 first quarter revenue was $4 $6 million down 13% from $5 $2 million in the same quarter last year.
The decrease was due to lower marketplace revenue as part of our strategic plan as I previously mentioned.
Recurring revenue as a percentage of total revenue was 97% for the quarter or $4 $4 million. This is a 10% increase over the same period in fiscal 2021.
Total operating expenses decreased 26% from $4 $6 million in Q1, 2021 to $3 $4 million in Q1 2022.
The decrease was due to lower marketplace costs and continued expense discipline.
Sales and marketing expenses decreased from $1 $3 million in Q1, 2021 to one $2 million in Q1 2022.
This decrease was the result of lower sales travel trade shows and cost reductions.
G&A costs were essentially flat at $1 $1 million.
For the first quarter of fiscal 2020 to GAAP net income was $947000 or 21% of revenue versus $555000 or 11% of revenue essentially a double.
Net income to common shareholders was $800000 or four cents per common share versus $408000 or <unk> <unk> per common share.
Turning now to cash flow and cash balances.
For the fiscal first quarter, we generated cash from operations of $1 $1 million compared to $1.2 million last year.
Total cash at September 30th 'twenty, 'twenty, one was $24 million compared to $24 million at the end of fiscal year 2021.
The decrease in total cash was due to the payoff of a $6 million credit facility with a bank.
Accordingly Park Citigroup carries no debt.
With respect to our stock buyback program.
As we said during the height of the Covid pandemic, we made the prudent decision to halt our buyback program.
We recommenced the program in the third fiscal quarter of 2021 and continued our activity in the fourth quarter and into the new fiscal year.
In the first quarter 2022, the company repurchased 7600 shares an average price of $5 43 per share for a total of $41276.
Please note since this was the first quarter of the fiscal year. The SEC rules only allowed us to be in the market for a couple of days.
We anticipate higher levels of share repurchases in the second quarter subject to various rules that limit how when and at what price. We can be buyers as we will have more days between quiet periods.
The program began the company has repurchased 718394 shares at an average price of $5 58 per share for a total of $4 million.
As our business and its current and future cash flows are predictable in August of 2021. The board of directors again approved to increase the stock repurchase program by $10 million.
The company has $11 $9 million remaining on the $12 million stock buyback authorization.
We will continue to opportunistically buy back more shares should conditions permit.
The combination of cash earnings growth and a shrinking capitalization should provide all of us with excellent EPS growth.
Thanks, everyone for your time today on this call I'll pass the call over to Randy Randy.
Thanks, John.
Mentum continued into fiscal 'twenty, two resulting in our first quarter double digit recurring revenue growth, it's worth noting by the way that recurring revenue is now 97% of our total revenue.
That's up significantly from only 64% a few years ago.
We've grown recurring revenue by a 15% compounded annual growth rate. Since we began this strategy to reduce one time and focus on recurring revenue.
During that same period, our GAAP earnings note GAAP.
Is that a growth rate of nearly 40% on a compounded annual growth rate basis, it's uncommon to say the least during this kind of a business shift.
Beyond the recurring revenue growth this quarter, we've made progress in several important initiatives first we're preparing the entire company for our track and trace solution both to meet the coming FDA mandates, but importantly also to enable us to onboard theoretically thousands of suppliers quickly and cost effectively after the mandate.
It's are finalized.
Second we're continuing to transition our marketplace offering to a subscription model more in line with our overall SaaS business plan and with much more appropriate contribution margins just like with our transitioning onetime license and services that we've now completed this marketplace effort will take some time, but you cannot.
Do you see progress in our quarterly margins third.
We are continuing those cross selling activities that we've mentioned on many prior calls we've had a number of successes this quarter, including expansions of our out of stock work from an existing compliance customer expansion of our compliance business etcetera.
All of our activities are now directed towards recurring revenue cash building per customer revenue expansion.
Our aim is to continue to grow our GAAP earnings at a rapid rate.
Our core business is exceptionally strong our recurring revenues significantly exceeds our cash fixed costs, enabling systemic profitability and free cash flow as John mentioned, we made the decision to pay down more than $6 million of our line of credit. So as of September 30th we still had more.
20 million in cash no debt and we're generating more than a million dollars a quarter in cash from operations.
This enables us to fund our share repurchase our growth initiatives and improve our already strong balance sheet.
The object is to our customers is an important focus of our balance sheet work in fact, our balance sheet will continue to serve us very well as the industry begins to focus on traceability.
Our track and trace initiative represents one of the largest opportunities we've ever seen at Park City group and the FDA mandates will effectively do the marketing for us.
Proposed rule tool for creates burdensome new requirements for those who manufacture process pack or hold the products under food Traceability list paper based systems will no longer work. The FDA has actually said as much.
Producers suppliers logistics companies will be forced to adopt numerous new technologies to meet these requirements.
As a company, we're very very focused as you know one of our customers.
This ability mandate will negatively impact them and they need to find a solution.
We've carved out a particular piece of the traceability problem space and no. One can do it any better than we were not doing labeling we're not doing scanning et cetera, our focus.
It's on the niche between trading partners. We certainly are not shy about the revenue opportunity it presents to us, but we have a moral obligation to look ahead for our customers and help them avoid the crisis the traceability could create.
Put this in context.
Given our 25000 plus customer base, we've identified about 6000 suppliers, whose products could be affected by rule tool for at a modest monthly subscription rate this opportunity could.
And I say could result in an additional $10 million to $12 million per year of recurring revenue and that's on top of our existing 18 million in recurring subscription revenue. After the mandate is in full force, hence our need for laser focus deemphasizing non core offerings and once again delivering flawless.
Execution.
The issue of traceability is really one of massive micro execution, the ability to process and handle for us literally billions of transactions per year and do it accurately.
We've been doing this in our supply chain arena for many years and we're sure that we're up to the challenge.
Case in point.
One of our existing long term customers has nearly 2000 rural tool for affected suppliers.
They have committed to a test in our most certainly a thought leader in the industry. If just this one customer used our solution for its thousands of suppliers would represent nearly 5 million per year in incremental revenue. Yes, we are working with more than one customer on the solution and ultimately every retailer every distributor every.
A player in every logistics company affected by the products on the traceability list will be impacted.
Our mission is to make sure that we are positioned to respond to what could be a significant influx of calls when this mandate has made official as I've said before every aspect of our company has to be ready from finance to marketing.
Since we already do track and trace successfully affordably and at scale as part of our supply chain platform. This opportunity is clearly right in the middle of our wheelhouse.
With over a decade of addressing compliance and supply chain challenges. We are the obvious vendor to address it in a sense traceability is a marriage of compliance and supply chain Wow almost design for us the traceability PON is huge one with many exploitable niches.
We've picked ours, we will aggressively go after it.
Players will likely go after different areas success of the myriad of technologies in these other areas of traceability actually augments our appeal it doesn't impinge on it in any way whatsoever.
Our business model for traceability is incredibly simple make it very low cost very easy to adopt and expand our existing compliance and supply chain offerings as.
As we said a few weeks ago on our fourth quarter call. This fiscal year will be about synchronization that these issues, which I must we're very very good at the F. D. N mandates are coming it's not a matter of if but when and how robust.
It's important to keep in mind, we think that the F. D. A has entered into a consent decree that requires the adoption of a set of rules regulating traceability.
Nevertheless, we're not expecting meaningful revenue from traceability in this fiscal year. This is the year. We wanted to do the hard work you can get all aspects of the solution ready in essence, all hands on deck working with our customers to make sure that it's organized around their needs.
F D A's timeline makes us a top priority for us and frankly, even more so for our customers.
I wanted to emphasize that even though the year is about preparing for the FDA rules. We're confident that we will grow our recurring revenue and drive earnings substantially right unplanned.
As I said, we're converting marketplace into a recurring subscription offering.
During our fiscal fourth quarter, two subscriptions were initiated and we expect more.
But since our focus is on traceability. This year, we're not putting significant resources against the marketplace transition for now.
In addition, the SaaS components of our platform are both growing well, we are adding and growing customers in both areas barring a worsening of supply chain problems. We believe that we will grow recurring revenue, 10% to 20% for fiscal 'twenty. Two yes, we achieved this growth rate in the first quarter and we're on plan to.
See some acceleration as the year unfolds as part of like Traceability focus we have sunset at a product that had limited market potential for us.
The number we reported included the reduction of revenues from that decision and they're still right in line with our plan.
Simultaneously, we continue to focus on expense control profitability increase margins and of course cash because of our business model. We're structurally set up for a successful 2022 year.
To reiterate our key goals for the fiscal year are one be ready for their track and trace solution before the mandate to continue on cross selling deferred their farm. The network three continued to add modules to our existing applications. This gives us a broader portfolio of valuable solutions.
Which we can sell to the same customers even the traceability product already has a roadmap to additional add ons within our plan.
Four continued to drive recurring revenue and five continued to generate additional profitability be debt free drive cash and buy back stock.
I'm very proud of the team and how we have navigated the transition from onetime revenue the pandemic et cetera, all the while maintaining high levels of customer success, and our own growth and profitability over the years, you've heard us talk about our own internal productivity, we focus on that a lot.
I'm sure you remember 10 X and other projects. We're now harvesting the fruit of all of those efforts we've put in place systems and processes to produce these growing margins. We have a lot more work to do obviously, but given our opportunities and I'm optimistic for fiscal 2022 and I believe you should be as well.
So with that I'd like to open the call for questions operator.
We will now begin the question and answer session to ask a question Press Star then one on your telephone keypad fear using a speakerphone. Please pick up your handset before pressing the keys.
Your question. Please press Star then two at this time, we will pause momentarily to with some of our author.
Yeah.
It appears our first question today comes from Thomas Forte at D. A Davidson. Please go ahead.
Great I have a couple of questions. They get harder questions go by we'll start the easy one first so John did you say that you think you took a million dollars of cash costs out of the business is that a permanent change or short term change.
Permanent change and yes million dollars, it's actually over I'm sorry.
And then Randy you've talked about.
Current state of distraction for your core customer a food retailer can you give us an update on your current thoughts there.
Yeah, not really much change in the last month or so since we did our year end call.
And so long as things stay about like they are we're comfortable with.
The current configuration of attention if things get worse, it'll slow us down if things improve it could help us a little bit.
Great and then I wanted to bring up the subject was discussed last quarter.
Which has only worsened since then can you talk about so historically put in place and can be good for food retailer.
And do you still feel that way and is it good for you.
The answer is and I have a mixed message here, but.
For retailers inflation is generally good to very good therefore, it's good for us Unfortunately for people.
In.
The kind of economic situation, which they find themselves out of work et cetera, it's not so good so I'm.
Sadly food inflation benefits the industry participants in the industry.
But it makes it worse for society for sure.
Okay, and then can you repeat why youre not expecting any incremental revenue from traceability in this fiscal year.
Well a lot of that has to do with our own internal preparedness, because theres no aspect of our business that this doesn't touch.
We need more certainty around what the possible rule tool for us it's called regulations are going to look like.
We're getting ready to do a number of tests actually more tests than we had thought about it in the beginning those tests really now just because of the season Christmas is coming for example, we're not gonna begin those tests until sometime in December.
January they'll run for a few months then we will develop a rollout plan et cetera. So it's just it's really just timing there might be a slight impact toward the end of this fiscal year, which would be may June but our current plan is it'll happen. After the end of the fiscal 2022.
Year.
All right. So last question and it's it's interrelated so you've talked about both Randy and John you've talked about your ability to essentially sell more services to your existing customer base.
Can you provide your updated thoughts there and then can you also talk about now that you've converted marketplace to a SaaS offering them. Your ability to then sell it to existing customers and then or are you selling the product on a standalone basis as well how should I think about that.
But let me go backwards in that we actually have signed up a couple of people who are not customers.
The use of marketplace.
So I think the answer to the question is we think it's a very appealing a concept, but as I mentioned, we just cant focus on that this year. The ramifications of traceability are so large not just from the economic top line bottom line perspective, but from the various parts of our business.
It touches that we can't focus on other things. So you got to keep that in the center of our plate.
Secondly, the cross selling activities are actually doing pretty well I'm pleased I've always been a kind.
Kind of a.
I've been not.
Not as excited about how well, we're doing cross selling as I'd like but it's definitely getting better but the bridge to the cross selling strangely enough is likely to be traceability a mean.
That in fact.
It did traceability is the FDA is looking for it.
It is indeed, a combination of our supply chain and our compliance activities. It's almost as if the F. D. A understood all of our capabilities and said well how would we get them to deploy them across their entire customer base. So the way we see this unfolding we are continuing to.
<unk> upsell our customers are for products that they have to us cross selling means that they go from supply chain to compliance orphan compliance to supply chain. That's a cross sell the others are just up sells within those two different suites of applications.
And although we'll continue to do the Upselling and I think the cross selling will be massively accelerated when traceability becomes the law of the land because it already then takes everyone those 6000 or more are.
Into an experience of both our supply chain and our compliance capabilities.
Thing really is made for us and that's why we're devoting so much time to it and then in the meantime, we're going to continue to percolate, along our 10% to 20% topline growth and a much more rapid growth of our earnings so.
It's an add on to what we're talking about in terms of acceleration. It's an accelerant, it's not a substitution. So we feel very very good about where the businesses today.
Thank you for taking my questions Randy John.
Thanks Todd.
Yeah.
This time it looks like we have no further questions.
I would now like to turn the call back over to Mr. Randy fields for any closing remarks.
We appreciate everybody taking time today, we hope that we've given you what the optimistic sense that we have about the business.
We feel very good about where we are at a customer satisfaction that we see everything that we would want in terms of unrolling the future into desirable way is happening for us. So we'll have additional questions. After the call reach out to John or to me and we'll get back to you just as soon as we can.
In the meantime, thanks, a lot for taking time.
The conference has now concluded. Thank you for a time phased presentation you may now disconnect.
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