Q2 2022 Park City Group Inc Earnings Call
Greetings and welcome to Park City Group fiscal second quarter 2022 earnings call. At this time, all participants are in a listen only mode.
Speaker 1: Greetings and welcome to Park City Group fiscal second quarter 2022 earnings call. At this time all participants are in a listen only mode.
And I suppose session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad Andrew.
Speaker 1: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Rob Fink with F. N K IR. Mr. Fink, you may begin.
Speaker 1: Rob Fink with F-N-K-I-R. Mr. Fink, you may be get...
Thank you operator, and good afternoon, everyone. Thank you for joining us today for Park City group's fiscal second earnings Conference call.
Speaker 2: Thank you, operator. Good afternoon, everyone. Thank you for joining us today for Park City Group's fiscal second earnings.
Speaker 2: Hosting the call today are Randy Fields, Park City Group's Chairman and CEO , and John Merrill, Park City Group's CFO .
Hosting the call today are Randy fields Park City groups, Chairman and CEO and John Merrill Park City group's CFO .
Speaker 2: 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.
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.
Speaker 2: forward-looking statements are statements that are subject that are not subject to historical facts.
Forward looking statements are statements that are subject.
We're not subject to historical facts.
Speaker 2: such forward-looking statements are based on current beliefs and expectations.
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.
Speaker 2: Park City Group management are subject to risks and uncertainties which could cause actual results to differ materially from those forward-looking statements.
Such risks are fully disclosed in the company's filing with the Securities and Exchange Commission.
Speaker 2: The information set forth here on should be considered in light of such risks.
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.
Speaker 2: Shortly after the market closed today, the company issued a press release overview against financial results that will be discussed on today's call.
Shortly after the market close today the company issued a press release issue overview of its financial results that will be discussed on today's call.
Speaker 2: Investors can visit the investor relations section of the company's website at parkcitygroup.com to access this pressure.
Investors can visit the Investor Relations section of the company's website at Park City group Dot Com to access this press release.
Speaker 2: With that said, I'd now like to turn the call over to John Merrill. John , the call is yours.
But that said I would now like to turn the call over to John Merrill John The call is yours.
Thanks, Rob and good afternoon, everyone.
The December quarter marked the completion of our three year transition to SaaS company.
Essentially all of our revenue in the quarter, 99% was sold on a subscription basis.
Now all of our revenue is recurring.
But just in perspective in 2018, only 64% of our revenue was recurring.
Speaker 3: To put this in perspective, in 2018, only 64% of our revenue was recurring. Marketplace revenue was volatile.
Marketplace revenue was volatile and highly unpredictable.
Speaker 3: and we sold software licenses and other lumpy one-time services.
And we sold software licenses and other lumpy one time services.
Speaker 3: This made it very challenging for us and our investors to predict quarter to quarter revenue and provide any actionable line of sight to our profitability.
This made it very challenging for us and our investors to predict quarter to quarter revenue and provide any actual line of sight to our profitability.
In 2019, our goal was to convert nonrecurring revenue to SaaS, while simultaneously, reducing cash expenses, making our business much easier to forecast their more profitable we have achieved that.
Speaker 3: In 2019, our goal was to convert non-recurring revenue to SaaS while simultaneously reducing cash expenses, making our business much easier to forecast and more profitable. We have achieved that.
Speaker 3: It was a bold goal. It was difficult. It was methodical.
It was a bold goal it was difficult it was methodical.
Speaker 3: We heavily invested in technology and process. We have a superior team, just 64 people, and we utilize our own technology, replacing third party CRM providers, antiquated contract storage partners, scrutinizing and eliminating waste, and streamline every process from contract to cap.
We heavily invested in technology and process, we have a superior team just 64 people and we utilize our own technology, replacing third party CRM CRM providers antiquated contract storage partners, scrutinizing, and eliminating waste and streamline every process from contract to cash.
Speaker 3: Nonetheless, as I have said before, from time to time there will always be a customer that insists on buying, meaning license, versus renting, meaning status, subscription, and Person It's all 100% up to those who use payOLOGY with
Nonetheless, as I have said before from time to time, there will always be a customer that just are buying meaning license versus renting getting SaaS subscription.
Speaker 3: However, that occurrence should be few and far between, and we have structured our sales process and pricing models to encourage the sale of SaaS solutions wherever possible.
However that our current should be few and far between we have structured our sales process and pricing models to encourage the sale of SaaS solutions wherever possible.
Speaker 3: Going forward, our current baseline recurring revenue, together with our stated goal to grow recurring revenue at approximately 10 to 20 percent annually, should serve as a model for predictable top-line growth for us and our shareholders.
Going forward, our current baseline recurring revenue together with our stated goal to grow recurring revenue at approximately 10% to 20% annually should serve as a model so predictable top line growth for us and our shareholders.
Speaker 3: It should be noted that consolidated revenue in the quarter reflects the absence of $1 million in non-recurring marketplace revenue in fund setting vendor based pricing which accounted for approximately $650,000 annually in revenue and $200,000 in the quarter.
It should be noted that consolidated revenue in the quarter reflects the absence of $1 million in nonrecurring marketplace revenue and sunsetting vendor based pricing, which accounted for approximately $650000 annually in revenue and $200000 in the quarter.
Speaker 3: Eliminating one-time revenue and ancillary efforts enables us to reallocate and realign resources to prepare for one of the largest opportunities in the company's history.
Eliminating onetime revenue and ancillary efforts enables us to reallocate and realign resources pair for one of the largest opportunities in the company's history.
Speaker 3: providing your customers a cost-effective solution for the anticipated FDA's food traceability.
Putting our customers a cost effective solutions for the anticipated F D H food traceability.
Please note that despite our recurring revenue achievements, we will commonly experienced volatility on a quarter to quarter basis, we have seasonal vendors, there's constant consolidation in the grocery industry we serve.
Speaker 3: Please note that despite our recurring revenue achievements, we will commonly experience volatility on a quarter-to-quarter basis.
Speaker 3: We have seasonal vendors. There is constant consolidation in the grocery industry we serve. Consequently, some quarters will be higher.
Consequently, some quarters will be higher and some quarters lower.
In any event, we maintain our goal to grow our recurring revenue of 10% to 20% annually.
Speaker 3: In any event, we maintain our goal to grow our recurring revenue at 10% to 20% annually.
In addition to growth in recurring revenue, we continue to reduce our cash operating expenses.
Speaker 3: In addition to growth and recurring revenue, we continue to reduce our cash operating.
Speaker 3: Total operating expenses decreased 29% year over year, partly due to lower costs of goods sold associated with one-time marketplace sales, but largely due to continued expense management and permanent expense reductions in our SG&A and R&D lines, which we have previously committed.
Total operating expenses decreased 29% year over year, partly due to lower cost of goods sold associated with onetime marketplace sales, but largely due to continued expense management and permanent expense reductions in our SG&A and R&D lines, which we have previously communicated.
The net result of systemic profitability.
Speaker 3: The net result is systemic profitability. As I have said before, each incremental revenue dollar over our $11 to $12 million and fixed cash costs, now $11 million, largely falls to the bottom line.
As I've said before each incremental revenue dollar over our $11 million to $12 million and fixed cash cost now $11 million largely falls to the bottom line.
You can see that on a revenue per employee $305000, each 84% higher than the industry average.
Speaker 3: You can see that in a revenue per employee. $305,000 each, 84% higher than the industry average.
Speaker 3: You can see that in the cash we are generating. $3.1 million in the first six months of this fiscal year and $2 million in the second fiscal quarter alone.
You can see that in the cash we're generating $3 $1 million in the first six months of this fiscal year and $2 million in the second fiscal quarter alone.
Speaker 3: This validates the leverage in the model. In other words, our cash and profitability grow substantially faster than revenue.
This validates the leverage in the model in other words, our cash and profitability grew substantially faster than revenue.
Speaker 3: Our net income, excluding the one-time benefits from the forgiveness of our PPP loan in the prior year's second quarter, increased 66% on a decrease in consolidated revenue.
Our net income excluding the one time benefit from the forgiveness of our PPP loan in the prior year second quarter increased 66% on a decrease in consolidated revenue.
Speaker 3: The earnings power of the company is now clear and easy to model. As we grow our top line, we should grow our bottom line even faster.
The earnings power of the company is now clear and easy to model as we grow our top line, we should grow our bottom line even faster.
Highlights as of December 31 are as follows.
Total revenue decreased 16% to $4 $4 million due to lower marketplace revenue and sunsetting of ancillary products. This was the plan.
Speaker 3: Total revenue decreased 16% to $4.4 million due to lower marketplace revenue and sunsetting of ancillary products. This was the plan.
Speaker 3: Recurring revenue for our SAS business, which includes compliant supply chain, was up 7% to $4.3 million for the quarter and 9% year to date. Recurring revenue now represents $9.3 million for the quarter and 9% year to date.
Recurring revenue for our SaaS business, which includes compliance supply chain was up 7% to $4 $3 million for the quarter at 9% year to date.
Recurring revenue now represents 99% of total revenue.
Total expenses decreased 29% due to lower across the board costs.
Speaker 3: Total expenses decreased 29% due to lower across the board costs operating income.
Operating income surged, 148%.
Speaker 3: Net income, excluding the non-recurring $1.1 million gain on the forgiveness or a PPP loan increased 66%.
Net income, excluding the nonrecurring $1 $1 million gain on the forgiveness or a P. P. P loans increased 66%.
Our net income for the quarter was $872000 or four cents per diluted share.
Speaker 3: Our net income for the quarter was $872,000, or $0.04 per diluted share.
Speaker 3: Cash from operations was nearly $2 million. We bought back over 244,000 shares of stock, and we ended the quarter with $21.7 million in cash in the bank.
Cash from operations was nearly $2 million.
We bought back over 244000 shares of stock and we ended the quarter with $21 $7 million in cash in the bank.
Speaker 3: Park City Group is now a SaaS company, a transactional revenue which created volatility in our quarter-to-quarter revenue and a drag on our margins has now shifted to a SaaS model.
Park City group is now a SaaS company.
Transactional revenue, which created volatility in our quarter to quarter revenue and a drag on our margins has now shifted to SaaS model.
To summarize we have a combination of proven solutions that enables customers to be compliant.
Speaker 3: To summarize, we have a combination of proven solutions that enables customers to be compliant, provide more actionable visibility into their supply chain, replace vendors, and source hard-to-find items now, all on a subscription basis.
Slide more actionable visibility into their supply chain replace vendors and so it's hard to find items now all on a subscription basis.
Turning to the quarterly numbers.
Fiscal year 2022 second quarter revenue was $4 $4 million down 16% from $5 $2 million in the same quarter last year.
Speaker 3: Fiscal year 2022 second quarter revenue was $4.4 million, down 16% from $5.2 million in the same quarter last year.
Speaker 3: A decrease was due to $1.2 million lower revenue as part of our strategic plan as I've already discussed.
The decrease was due to $1.2 million lower revenue as part of our strategic plan as I've already discussed.
Recurring revenue as a percentage of total revenue was 99% for the quarter or $4 $3 million.
Speaker 3: Recurring revenue as a percentage of total revenue was 99% for the quarter or $4.3 million.
Speaker 3: This is a 7% increase over the same period in fiscal 2020.
This is a 7% increase over the same period in fiscal 2020 one.
Speaker 3: But elaborating expenses decreased 29% from $4.8 million in Q2 2021 to $3.4 million in Q2 2022. Decreases due to lower.
Total operating expenses decreased 29% from $4 $8 million in Q2, 2021, $3 $4 million in Q2 2022.
The decrease was due to lower across the board costs.
Speaker 3: Sales marketing expenses decreased from $1.2 million in Q2 2021 to 1.15 million in Q2 2022. This decrease was the result of lower sales travel, trade shows and cost reductions. G&A costs were essentially flat.
Sales and marketing expenses decreased from $1 $2 million in Q2, 2021 to 1.15 million in Q2 2022 .
This decrease was the result of lower sales travel trade shows and cost reductions.
G&A costs were essentially flat at $1.2 million.
Speaker 3: For the second quarter of fiscal 2022, GAAP net income was $872,000, or 20% of revenue, versus $1.6 million last year, which included the $1.1 million benefit for the forgiveness of our PPP loan.
For the second quarter of fiscal 2022 GAAP net income was $872000 or 20% of revenue versus $1 $6 million last year, which included the $1 $1 million benefit for the forgiveness of our P. P P loans.
Speaker 3: Excluding this gain, net income in the second quarter last year was $524,000 for 10% of revenue.
Excluding this gain net income in the second quarter last year was $524000 or 10% of revenue.
So for the second quarter in a row, we've essentially doubled our net margin.
Speaker 3: So for the second quarter in a row, we've essentially doubled our net margin.
Speaker 3: Net income to common shareholders was $725,000, or $0.04 per common share, versus $1.5 million, or $0.08 per common share.
Net income to common shareholders was $725000 or four cents per common share versus $1 $5 million or eight per common share.
Speaker 3: Again, the prior year quarter includes the impact of the PPP loan forgiveness.
Again, the prior year quarter includes the impact of the PPP loan forgiveness.
Turning to the six month numbers.
Fiscal year 2022 year to date revenue was $8 $9 million down 14% from $10 $4 million from the same period last year.
Speaker 3: Fiscal year 2022 year to date revenue was eight point nine million dollars down 14 percent from ten point four million dollars the same period last.
Speaker 3: Recurring revenue as a percentage of total revenue was 98% for the six months or $8.7 million. This is a 9% increase over the same period of fiscal 2021.
Recurring revenue as a percentage of total revenue was 98% for the six months or $8 $7 million. This.
This is a 9% increase over the same period in fiscal 2021 .
Total operating expenses decreased 28% from $94 million, the $6 $8 million for the first six months of fiscal 2022.
Speaker 3: Total operating expenses decreased 28% from $9.4 million to $6.8 million for the first six months of fiscal 2022.
Sales and marketing expenses decreased from $2 $4 million in 2000 $21 million to $2.3 million in fiscal 2022.
Speaker 3: Bales marketing expenses decreased from $2.4 million in 2021 to $2.3 million in fiscal 2022.
Again, G&A costs were essentially flat at $2 $3 million.
Speaker 3: Again, G&A costs were essentially flat at $2.3 million.
Year to date, GAAP net income was $1.82 million or 20% of revenue versus $2.18 million inclusive of the $1 $1 billion gain.
Speaker 3: Year-to-date GAAP net income was $1.82 million, or 20% of revenue, versus $2.18 million, inclusive of the $1.1 million gain on the forgiveness or PPP line.
Giving us or a PPP loan.
Excluding this net income in the second quarter last year was $1 1 billion or 11% of revenue.
Speaker 3: Excluding this, net income in the second quarter last year was $1.1 million for 11% of revenue.
Speaker 3: So again, for the second quarter in a row, we have essentially doubled our net margin.
So again for the second quarter in a row, we have essentially doubled our net margin.
Speaker 3: Year-to-date gap in that income to common shareholders with $1.53 million or 8 cents per common share versus $1.88 million or 10 cents per common share last year, which again includes the impact of the PPP loan forgiveness.
Year to date GAAP net income to common shareholders with $1.53 billion or eight cents per common share versus $1 eight $8 million for 10 cents per common share last year, which again includes the impact of the PPP loan forgiveness.
Turning now to cash flow and cash balances.
Speaker 3: The fiscal second quarter, we generate cash from operations of $2 million.
For the fiscal second quarter, we generated cash from operations of $2 million.
Speaker 3: Total cash at December 31, 2021 was $21.7 million compared to $24 million at the end of fiscal year 2020.
Total cash at December 31, 2021 was 21 $7 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 during the first quarter.
Speaker 3: The decrease in total cash was due to the payoff of a $6 million credit facility with a bank during the first quarter.
Speaker 3: The company now carries approximately $930,000 in short-term debt on its revolving line of credit. Short-term debt was used to buy back.
The company now carries approximately $930000 in short term debt on its revolving line of credit.
The short term debt was used to buyback additional shares of stock.
During the quarter, we repurchased 244005 hundred 52 shares at an average price of $5.85 per share for a total of $1 $43 million.
Speaker 3: During the quarter, we repurchased 244,552 shares at an average price of $5.85 per share for a total of $1.43 million.
Speaker 3: To date, the company has repurchased 1,002,914 shares at an average price of $5.06 per share for a total of $5.7 million.
To date, the company has repurchased $1 million in 2914 shares an average price of $5.06 per share for a total of $5 $7 million.
Speaker 3: The company has approximately 10.5M dollars remaining on the 12M dollar buyback authorization.
The company has approximately $10 $5 million remaining on the $12 million buyback authorization.
Speaker 3: Thanks everyone for your time today and at this point I'll pass the call over to Randy.
Thanks, everyone for your time today and at this point I'll pass the call over to Randy Randy.
Speaker 4: Thanks, John . As John pointed out, we achieved the non-trivial task of converting basically all of our revenue to recurring revenue. We did this without sacrificing our profitability during that transition. In fact, we've meaningfully increased our profitability in our cash generation. We've always believed that cash is king, and during uncertain times, we think profitability and cash generation are even more important.
Thanks, John .
John pointed out we achieved a non trivial task of converting basically all of our revenues are recurring revenue. We did this without sacrificing our profitability during that transition.
We've meaningfully increased our profitability and our cash generation.
We've always believed that cash is king during uncertain times, we think profitability and cash generation are even more important.
Speaker 4: Recurring revenue grew 7% in the quarter, nearly 9% for the first six months of the year, and we expect it to grow at least 10% for the full year.
<unk> revenue grew 7% in the quarter nearly 9% for the first six months of the year and we expect it to grow at least 10% for the full year.
Speaker 4: Since we made the strategic decision to convert one-time revenue into a recurring revenue model wherever possible, enabling us to focus on our SAS revenue, our growth rate for recurring revenue has been around 15%. That's exactly the midpoint of the range that we're targeting long-term.
Since we made the strategic decision to convert one time revenue into a recurring revenue model wherever possible, enabling us to focus on our SaaS revenue growth rate for with Crane revenue has been around 15%.
That's exactly the midpoint of the range that we're targeting long term.
It's important to recognize that our growth rate in the quarter reflect several strategic decisions in the year ago quarter, one time low margin marketplace revenue there was about a million dollars.
Speaker 4: It's important to recognize that our growth rate in the quarter reflects several strategic decisions. In the year ago quarter, one time low margin marketplace revenue was about a million dollars.
Speaker 4: So in fact, you can already see that we're making progress in our quarterly margins. Secondly, we're making progress in our quarterly margins.
So in fact, you can already see that we're making progress in our quarterly margins.
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Speaker 4: It reflects the strategic decision to sunset certain services that, although they were substantial in terms of current revenue, had less long-term growth potential and frankly were distractions to the more exciting areas of opportunity for us. The impact is about $700,000 this year, about 4% of our total.
It reflects the strategic decision to sunset certain services that although they were substantial in terms of revenue.
Had less long term growth potential and frankly were distractions to the more exciting areas of opportunity for us.
Impact is about $700000 this year about 4% of our total.
Speaker 4: By exiting this product, we sacrifice a small amount of quarterly revenue, but we free up resources for the much larger opportunity coming down the pike, traceability.
By exiting this product we sacrifice a small amount of quarterly revenue, but we free up resources for the much larger opportunity coming down the Pike traceability.
Speaker 4: We have continued preparing for the company's Track and Trace initiative. It's going to be a significant opportunity for us, uniquely in my opinion, for us, and the FDA mandates will effectively do much of the marketing for it.
We have continued preparing for the company's track and trace initiatives its going to be a significant opportunity for us uniquely in my opinion for us and the F. D. A mandates will effectively do much the marketing for us.
Speaker 4: The proposed Rule 204 imposes burdensome new requirements for those who manufacture, process, pack, or hold the products on what's called the Food Traceability List.
The proposed rule tool for them.
Hoses burdensome new requirements for those manufacturer process pack or hold the products on what's called the food Traceability list.
There's about 16 categories of items on this list from the F D. A such as eggs soft cheese herbs leafy Greens etcetera.
Speaker 4: There's about 16 categories of items on this list from the FDA, such as eggs, soft cheese, herbs, leafy greens, et cetera. And please note, the FDA has specifically said that paper-based systems are no longer sufficient.
And please note the F. D. A has specifically said the paper based systems are no longer sufficient.
Speaker 4: They are mandating truly an electronic solution. Our niche in traceability is important and will augment what many others in this field are doing. We believe we'll play a very important role in the industry's move to solving the problem of end-to-end traceability.
They are mandating truly an electronic solution.
Our niche and traceability is important and will augment with many others. In this field are doing we believe will play a very important role in the industries move to solving the problem of end to end traceability.
Speaker 4: Traceability requires massive micro execution, the ability to process and handle literally tens of billions of transactions per year and do it at the same time accurately, quickly, electronically, and in a fully automated fashion.
Traceability requires massive micro execution, the ability to process and handle literally tens of billions of transactions per year and do it at the same time accurately quickly electronically and in a fully automated fashion.
Speaker 4: Since we already do Track and Trace successfully, affordably, and at scale as part of our supply chain platform, this opportunity is squarely in our wheelhouse.
Since we already do track and trace successfully affordably and at scale as part of our supply chain platform. This opportunity is squarely in our wheelhouse.
Speaker 4: Park City Group has more than a decade of addressing compliance and supply chain challenges.
Dark citigroup has more than a decade of dressing compliance and supply chain challenges. Accordingly, we are the obvious vendor to address it.
Speaker 4: Accordingly, we are THE obvious vendor to address.
Speaker 4: In a sense, traceability is a marriage of compliance and supply chain. It's like this challenge in fact was actually designed for us. And importantly, as we prepare our traceability solution, we're leveraging our experience in the industry, our relationships with our retail and supplier customers.
No sense traceability is a marriage of compliance and supply chain. It's like this challenge in fact was actually designed for us and importantly, as we prepare our traceability solution, we're leveraging our experience in the industry, our relationships with our retail and supplier customers and the lessons we've learned.
Speaker 4: and the lessons we've learned in rolling out compliance and supply chain solutions at scale across the industry.
And rolling out compliance and supply chain solutions at scale across the industry.
Speaker 4: Our business model for traceability is incredibly simple, make it very low cost and exceptionally easy to adopt. We know that simplicity and low cost are the keys in this industry for adoption. And we know that we can generate meaningful revenue and profitability even at a low monthly subscription rate.
Our business model for traceability is incredibly simple make it very low cost and exceptionally easy to adopt we know that simplicity and low cost are the keys in this industry for adoption.
We know that we can generate meaningful revenue and profitability, even at a low monthly subscription rate.
Speaker 4: We already have the systems in place, so no major development is needed. That's key.
We already have the systems in place so no major development is needed that's key.
Speaker 4: Any new entrance into the marketplace can't match that advantage. Think about it. A proven, scaled, and already connected to a vast network of suppliers and retailers. And has always been the case, we're focused on our customers and what they need. We know them, and they know and trust us. We're up to the challenge.
Any new entrants into the marketplace can't match that advantage to think about it a proven scale and already connected to a vast network of suppliers and retailers.
And as always been the case, we're focused on our customers and what they need.
We know them and they know and trust us we're up to the challenge.
Speaker 4: In reality, these mandates will just expand the scope and increase the importance of adoption. It won't be optional anymore.
In reality. These mandates will just expand the scope and increase the importance of adoption won't be optional anymore to put this in context, given our existing 25000 plus customer base. We've identified something in the order of 6000 suppliers, whose products may be initially affected by rule tool for you.
Speaker 4: To put this in context, given our existing 25,000 plus customer base, we've identified something in the order of 6,000 suppliers whose products may be initially affected by Rule 204. Even at a modest subscription rate, this opportunity will be a substantial add-on to our current $20 million a year of SaaS revenue.
Even at a modest subscription rate this opportunity will be a substantial I'll add onto our current $20 million a year of SaaS revenue.
Speaker 4: The size of this, the compressed timeline, the mandates that are being created, and the massive impact on our customers and their suppliers, requires us to pull all hands on deck to perfect the rollout of our solution. Now. This validates our decision to de-emphasize certain non-core offers.
The size of this the compressed timeline the mandates that are being created and the massive impact on our customers and their suppliers requires us to pull all hands on deck to perfect. The rollout of our solution now is.
Validates our decision to deemphasize certain noncore offerings.
We are however, expecting meaningful revenue from traceability in this fiscal year. The regulations will be finalized by November and that will be the starting dose in fact, none of our internal models require any contribution from traceability to achieve our goals of 10% to 20% of your revenue.
Speaker 4: We aren't, however, expecting meaningful revenue from traceability in this case.
Speaker 4: The regulations will be finalized by November , and that will be the starting gun. In fact, none of our internal models require any contribution from traceability to achieve our goals of 10-20% a year revenue growth.
This is a year, we do the hard work without any traceability revenue. This is the year, we do everything we need to to be fully ready.
Speaker 4: to be able to implement this at scale with our customers. And it's important for us therefore to be organized around their needs.
To be able to implement this at scale with our customers and it's important for us therefore to be organized around their needs.
Speaker 4: The FDA's timeline makes this a top priority for us and even more so for our customers. We've been doing a series of tests that we've mentioned with our customers. And no surprise, obviously, it's all going very well, exactly as we've...
The Fda's timeline makes us a top priority for us and even more so for our customers. We've been doing a series of tests that we mentioned with our customers and no surprise, obviously, it's all going very well exactly as we planned.
Speaker 4: Simultaneously, we're continuing to cross selling activities that we've mentioned on prior calls. We've had several successes this quarter. Our largest user of out-of-stock management recently expanded their agreement with us. Our out-of-stock solution is increasingly contributing to our core SaaS revenue and it provides a valuable service for our customers in a world increasingly dominated by Amazon.
Simultaneously, we are continuing to cross selling activities that we've mentioned on prior calls we've had several successes this quarter, our largest user of out of stock management recently expanded their agreement with US our out of stock solution is increasingly contributing to our core SaaS revenue and it provides a valuable service for our customers in the world.
Recently dominated by Amazon.
Speaker 4: Our tier two program is growing quite rapidly in terms of numbers and revenue. And most importantly, seriously, most importantly, our execution can you can use to be something that as shareholders, we can all be proud of. Interestingly, most of our largest customers are growing the use of our services quite rapidly, that certainly speaks volumes about how well our team is delivering on our brand.
Our tier two program is growing quite rapidly in terms of numbers and revenue and most importantly seriously. Most importantly, our execution can you can use to be something that as shareholders. We can all be proud of interestingly most of our largest customers are growing the use of our services quite rapidly, but certainly speaks.
Williams about how well our team is delivering on our brand promise.
Speaker 4: When traceability becomes a reality, it will be our largest customers who roll out traceability first. Our long-term relationships and our laser focus on keeping our customers delighted and successful is perhaps our most durable competitive mode.
Traceability becomes a reality it will be our largest customers who rollout traceability first our long term relationships and our laser focus on keeping our customers delighted and successful is perhaps our most durable competitive moat.
Speaker 4: We have a fortress balance sheet. Seriously, we are structurally profitable with growing recurring revenue that significantly exceeds our cash operating expenses and the leverage that's inherent in the model that enables us to grow profitably and cash faster than revenue. We have made and continue to make significant investments in our own internal technology.
We have a fortress balance sheet seriously.
We are structurally profitable with growing recurring revenue that significantly exceeds our cash operating expenses.
And the leverage that's inherent in our model enables us to grow profitably and cash faster than revenue. We have made and continued to make significant investments in our own internal technology and systems.
Speaker 4: Our proprietary tech has massively increased the measurable productivity of our team. That's why our revenue per employee is so high. And in fact, that number should continue to climb over time.
Proprietary tech is massively increase the measurable productivity of our team that's why our revenue employee per employee is so hot in fact that number should continue to decline over time.
Speaker 4: Our method of continually examining costs and automating the administration across the business is actually a very important competitive advantage for us.
Our method of continually examining costs and automating the administration of pasta business is actually a very important competitive advantage for us.
Our aim is to continue to grow our GAAP earnings at a very rapid rate.
Speaker 4: Our aim is to continue to grow our gap earnings at a very rapid rate.
Speaker 4: We recognize that our conservative nature makes understanding us a little bit harder, but we're in an environment where conservatism, we believe, is and will be rewarded.
We recognize that our conservative nature makes understanding is a little bit harder, but we're in an environment, where conservatism. We believe is and will be rewarded.
Speaker 4: our company should now be much easier to understand and much more likely to be appreciated.
Our company should now be much easier to understand and much more likely to be appreciated.
Speaker 4: Every product area of our business is growing. Our pipeline of prospective new business is excellent, and we're attracting a very high caliber of new staff.
Every product area of our business is growing our pipeline of prospective new business is excellent and we're attracting a very high caliber of new staff.
Speaker 4: We are accelerating our revenue and expect to see continued improvement over the next several quarters.
We're accelerating our revenue and expect to see continued improvement over the next several quarters.
Speaker 4: But to reiterate, our key goals for this fiscal year are 1. Be ready for the track and trace solution before the mandate. 2. Continue to add modules to our existing applications. This gives us an even broader portfolio of solutions that we can sell to our customers. In fact, even the traceability product already has a roadmap to additional modules or add-ons in our plan. While everyone erases from 5 to 6 months in fiscal year 2020,why don't most customers MCAS already recognize their
But to reiterate our key goals for this fiscal year are one be ready for the track and trace solution before the mandate to.
T need to add modules to our existing applications. This gives us an even broader portfolio of solutions that we can sell to our customers in fact, even the traceability product already has a roadmap to additional modules or add ons in our plan.
Our focus is simple continue to generate additional profitability drive cash and buy back stock we've achieved a lot in the last year. We've done there the mid stope, obviously difficult global pandemic deep supply chain disruptions and.
Speaker 4: continue to generate additional profitability, drive cash, and buy back stock. We've achieved a lot in the last year. We've done it amidst an obviously difficult global pandemic and deep supply chain disruption.
Speaker 4: I'm incredibly proud of the team and how we've navigated this transition to a full SaaS model, and at the same time maintaining very high levels of customer success and satisfaction, and at the same time our own growth and profitability.
I'm incredibly proud of the team and how we've navigated this transition to a full SaaS model and at the same time, maintaining very high levels of customer success and satisfaction and at the same time, our own growth and profitability.
Speaker 4: Given our opportunities, I'm very optimistic for fiscal 2022, and I believe you should be too.
Given our opportunities I'm very optimistic for fiscal 2022, and I believe you should be too.
Speaker 4: So with that, I'd like to now open the call for questions. Operator.
So with that I'd like to now open the call for questions operator.
Thank you and at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question Hugh.
Speaker 1: Thank you and at this time we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in service.
You May press star two if he would like to remove your question from the queue.
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Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Archie.
One moment, please while we poll for questions.
And our first question comes from the line of Tom Forte with D. A Davidson. Please proceed with your question.
Speaker 1: And our first question comes from the line of Tom Forte with DA Davidson.
Great Randy and John Thanks for taking my questions Congrats on the quarter and.
Speaker 5: Great, Randy and John , thanks for taking my questions. Congrats on the quarter. I'll go one at a time to make it easy. So first one is the one I'm consistently asking. So Randy and John , can you talk about the state of distraction for your core customer given the current challenges today? I think Randy had talked about intra-quarter, the notion that a lot of the food retailers were challenged with Omicron from a labor shortage.
I'll go one at a time to make it easy.
First one is the one that consistently asking Randy and John can you talk about the state of distraction.
Core customer.
The current challenges today, I think Randy you talked about intra quarter.
Sure.
A lot of food retailers were challenged with a crime from a labor shortage standpoint.
Speaker 5: But is that affecting you at all yourself?
Is that affecting it all yourself.
Speaker 4: The answer really was contained in the statement that I made that all of our products now seem to be coming alive. Our pipeline is superb.
The answer really was contained in the statement that I made that.
All of our products now seem to be coming alive, our pipeline is superb.
Speaker 4: So, the labor issues remain. People still need more staff than they have, and that affects the entire supply chain.
So those the labor issues remain.
People still need more staff than they have and that affects the entire supply chain. So most food retailers still have a lot of focus on supply chain. There is tiny bit of evidence that it's beginning to free up a bit but fortunately I think the worst is behind us.
Speaker 4: So most food retailers still have a lot of focus on supply chain. There's a tiny bit of evidence that it's beginning to free up a bit, but fortunately I think the worst is behind us.
Second question is you've talked about.
Speaker 5: Second question is, you've talked about the pivot to recurring revenue. From an expense standpoint, if you're successful in exploiting the opportunity on traceability, how would that affect, if at all, your operating strategy?
Pivot to recurring revenue from an expense standpoint, if you're successful and exploiting the opportunity on traceability.
How would that affect if at all the operating expenses.
Well I think John and I are of the belief that.
Speaker 4: Well, I think John and I are of the belief that, and I think the way he stated it, I certainly agree with, that from here forward, 80 plus percent of our additional revenue will become cash and income.
And I think the way he stated at least I certainly agree with that from here forward 80, plus percent of our additional revenue will become cash and income.
Speaker 4: So we expect that there's some variable expenses with what we'll be doing, but not substantial. It will not impact our margins negatively.
So we expect that.
There's some variable expenses with what we'll be doing but not substantial it will not impact our margins negatively.
Is that.
Speaker 5: All right, and then third and final, from a capital allocation standpoint, how should we think about buybacks? How should we think about?
Alright, and then third and final from a capital allocation standpoint.
Should we think about buybacks, how should we think about potential.
Speaker 5: potential M&A, and they've talked a lot about using your pre-cash flow to buy back more shares.
Potential M&A and they've talked a lot about using your free cash flow to buyback more shares.
Speaker 5: Are there opportunities to add products to complement what you have today or any other potential uses of capital?
Are there opportunities to add products.
To complement what you have today or any other potential uses of capital.
John you want to take that.
Yeah, I think we've we've said it on previous calls that the cash that we generate quarterly we would take half of that cash and buy back additional shares of stock, but the rest of it in the bag that may change from quarter to quarter, but looking back that is our goal to take half the cash and buy back stock.
Speaker 3: Yeah, I think we've said it on previous calls that the cash that we generate quarterly, we would take half of that cash and buy back additional shares of stock, put the rest of it in the bank. That may change from quarter to quarter. But looking back, that is our goal to take half the cash and buy back stock. As far as
As far as the.
Speaker 3: traceability or other initiatives. I don't see more headcount.
The traceability or other initiatives I don't see more head count as Randy pointed out it does it require more development. We're already doing traceability I think last quarter, we talked about expenses going down you would asked where they permanent the answer is yes, and then our in my.
Speaker 3: As Randy pointed out, it doesn't require more development. We're already doing traceability. I think last quarter we talked about expenses going down. You had asked were they permanent? The answer is yes. And in my.
Speaker 3: statement. We had always said it takes $12 million to keep the company alive. I think we've now reduced that down to $11 million that is permanent.
Statement you know we had always said it takes 12 million.
To keep the company alive.
Now reduced that down to 11 million that is permanent.
Speaker 3: I don't see that changing going forward with traceability and as far as M&A.
I don't see that changing going forward with traceability and as far as M&A.
Speaker 3: um you know we're always acquisitive but uh with
You know, we're always acquisitive, but with with revenue multiples right now I don't see anything that makes it makes sense that we have plenty on our plate, let's put it that way without M&A.
Speaker 3: With revenue multiples right now, I don't see anything that makes sense. We have plenty on our plate, let's put it that way, without M&A.
Excellent thanks for taking my questions.
Speaker 1: And we have reached the end of the question and answer session. I'll now turn the call back over to Randy for a...
And we have reached the end of the question and answer session I'll now turn the call back over to Randy for closing remarks.
Speaker 4: Okie doke, thank you. We appreciate everybody taking time this afternoon. I think the only question that wasn't raised is the likelihood of the traceability initiative coming to fruition with the government mandate.
Okey doke. Thank you we appreciate everybody taking time this afternoon.
The only question that wasn't raised is the likelihood of the traceability initiative I'm coming to fruition with with the government mandate.
And.
Speaker 4: and perhaps we should have explained in our commentary, we see no way that the government can exit the road that it's on. It's laid down a proposed rule. We're sure there'll be some tweaking around the edges, but traceability is going to happen.
Perhaps we should have explained in our in our commentary we see no way that the government can exit the road, but it's on it's laid down a proposed rule. We're sure there'll be some tweaking around the edges, but traceability is going to happen. We actually think that we've developed a way to help the industry.
Speaker 4: We actually think that we've developed a way to help the industry use traceability to its economic advantage rather than disadvantage.
Use traceability to its economic advantage rather than a disadvantage.
Speaker 4: So we're finding the market even more receptive to what we're doing than we originally had guessed.
So we're finding in the market even more receptive to what we're doing than we originally had guessed. So full speed ahead and thanks, everybody for taking time. This afternoon, we'll talk to you all next quarter.
Speaker 4: So full speed ahead, and thanks everybody for taking time this afternoon. We'll talk to you all next quarter. Thank you.
Thank you.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Speaker 6: seven Don.
Yeah.
Yeah.