Q4 2023 Park City Group Inc Earnings Call
Your readings and welcome to the Park City Group fiscal fourth quarter 2023 earnings call. At this time all participants are in a listen-only mode. A question and answer session will follow the formal presentation. 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.
It is now my pleasure to introduce your host, Jeff Standless with FNKIR. Mr. Standless, you may begin.
Thank you operator good afternoon everyone. Thank you for joining us today for Park City Group's fiscal fourth quarter earnings call Hosting the call today are Randy Fields Park City Group's chairman and CEO and John Merrill Park City Group's CFO Before we begin I'd 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
While we're looking statements or statements that are not subject to historical facts.
such forward-looking statements are based on current police and expectations.
Park City groups from marks are subject to risks and uncertainties, which actual results could differ materially.
Such risks are fully discussed in the company's filings for the Securities and Exchange Commission. The information set for Karen should be considered in light of such risks.
ProxyD group does not assume any obligations to update information contained in this conference call.
Shortly after the market closed today, the company issued a press release overviewing the financial results that we will discuss on today's call. Investors can visit the investor relations section of the company's website at parkcitygroup.com to access this press release.
With all that said, I would now like to turn the call over to John Merrill. John , call his yours.
Thanks, Jeff, and good afternoon, everyone. Our fourth quarter was a strong end to a solid year in every area of the business, compliance, supply chain, and traceability.
As now a SAF company, the results of Fiscal 2023 should provide a line of sight to Fiscal 2024 and beyond.
As I've said before, our business is easy to model and highly predictable.
I will dive into the detailed results in a minute. However, in fiscal 2023, we delivered growth in both total and recurring revenue, essentially flat expenses.
Growth and profitability, growth and net income and growth in EPS.
We put up some very meaningful results.
We generated just under $9 million in cash and operations paid off over $2.5 million in bank debt. We turned $1.4 million to shareholders in the form of a cash common dividend and bought back $1.3 million in common stock. Simultaneously strengthening our balance sheet.
Meanwhile, we deliver 20 cents per share for the year.
We achieve this performance while simultaneously navigating a challenging economy of rising interest rates and general economic uncertainty.
Instead of throwing money at the issue, we evaluate and assess the predictability and reliability of automation versus the efficiency in a neat errors that come with humans.
Our response is balanced.
All of this process was eliminating high touch noncore revenue and return for future growth opportunities ideally those opportunities in our core food market.
In other words, we are rationalizing our customer and product set to allow us to focus on and promote success with traceability and simultaneously, placing less emphasis on lower short term revenue opportunities.
Our compliance and supply chain business continues to gain momentum for the year. Despite overcoming 700000 of the high touch noncore revenue, we deemphasize that I previously mentioned, yes.
Yes short term revenue growth rates are impacted we delivered a 6% revenue growth year over year and this performance includes overcoming that revenue we deemphasize.
In short the strategic focus will free up significant personnel resources to focus on traceability.
In my view, giving up a few hundred thousand to pick up $3 million to $4 million in 2025 ALR are recurring traceability of revenue is the right decision.
As I said earlier, our core compliance and supply chain business continued to grow efficiently and profitably.
And the numbers.
Total revenue was up 6% for the full year and 5% for the June quarter.
Recurring revenue increased 7% for the year and 6% for the quarter.
Even with significant investments in our Repositrak traceability network or our T. N. Our SG&A costs were essentially flat for the year and up modestly for the quarter.
GAAP net income increased 40% for the year at 26% for the quarter.
GAAP net income to common shareholders increased 46% for the year and 30% for the quarter.
Earnings per share increased 52% for the year 27 cents per share and increased 30, 34% for the June quarter to seven cents.
Full year cash from operations increased 45% to $8 $9 million.
And we bought back approximately 232000 common shares at an average share price of $5 65 per share paid off our bank debt entirely paid $1 $4 million in cash dividends and have just under $24 million cash in the bank.
As we have said our profitability and cash flow, we will continue to grow faster than revenue.
We're seeing that today as we grew revenue by 6% and net income by 40%. Meanwhile, cash from operations grew 45%.
Consistent with our strategy our focus is on increasing operating leverage this requires us to continue to make difficult decisions to drive high margin incremental revenue, while keeping costs in line and driving profitability and cash.
Importantly, the customers we have signed so far for our traceability initiative to generate additional dollars of recurring revenue once fully deployed.
Our current estimate ranges from $3 million to $4 million per year, just some suppliers, we have in hand today and excluding conservation contributions from individual stores.
We ended the fiscal year with an exit rate of annual recurring revenue or a R. R a $23 million.
Meaning as of June 32023, those contracts in hand billing monthly times 12 will generate $23 million in annual recurring revenue and the subsequent 12 months.
This is absent any new contracts future expansion of existing contracts for anticipated growth.
Keep in mind this is organic growth, meaning existing suppliers and retailers that are expanding compliance and supply chain services, adding stores or locations and traceability in the prior fiscal year.
This does not include any revenue contribution from our projected new customer.
And obvious question one might ask is are you generating traceability revenue yet the answer is yes, but in fiscal 2023, it was minimal and our $20 million for fiscal 2024 Conservative conservatively reflects the same.
I believe the momentum we are seeing initially with traceability customers faster than I anticipate it will only accelerate.
We are confident that traceability will begin to generate meaningful revenue in calendar 2024.
Further acceleration in contribution from traceability will only accelerate our top and bottom line growth.
I've said it time and time again, it takes approximately $12 million in cash to run this place.
Going forward on each incremental recurring revenue dollar over and above our fixed cash cost of roughly $12 million per year 80 to 85 cents will fall to the bottom line.
As I just mentioned our recurring contracted revenue significantly exceed that $12 million.
Our focus on operating leverage rationalizing their revenue generated with the cost expanded so a 6% increase in recurring revenue generated a 46% increase in the bottom line. This year, even as we invested heavily in our T M.
We accomplished this through automation utilizing our own proprietary tools this drives more productivity across our entire business.
Automation that enables us to take excellent care of our customers without adding significant head count or overhead costs.
Customers are priority, one and we can deliver superior customer service, while at the same time, increasing our profitability.
Again, our strategy remains very simple take care of the customer grow recurring revenue rationalizing costs with the opportunity of future revenues and control costs increase net income accelerate EPS buy back shares, which now includes the preferred shares and drive cash.
Turning to the quarterly numbers.
Fiscal year 2023 fourth quarter revenue was $4 $8 million up 5% from $4 $6 million in the same quarter last year.
Recurring revenue as a percentage of total revenue was 99, 5% for the quarter.
Recurring revenue in the quarter grew 6% over the same period in fiscal 2022, despite the revenue deemphasize during the fiscal year.
To date, we have overcome the headwind of approximately $700000 in what I have referred to high touch low opportunity revenue simultaneously, increasing both total revenue and recurring revenue for the period.
Operating expenses increased 5% to $3 $6 million in Q4 2023.
Depreciation and amortization increased 55%, which reflects investments and traceability upgrades to equipment to address cyber security and other routine capex expenditures.
Sales and marketing expenses decreased 1% and G&A expenses increased 5%.
These modest increases reflect Archie and investments in our sales staff returned to travel that's TOBA debates.
For the fourth fiscal quarter of 2023, GAAP net income was $1 $4 million or 29% of revenue versus $1 1 million or 24% of revenue.
GAAP net income increased year over year by 26%.
Net income to common shareholders was $1 2 million or seven per common share based on $18 8 million weighted average shares versus $950000 or five cents per common share based on 19 4 million weighted average shares.
You'll also note we have reduced our capitalization of almost 10% through the repurchase and retirement of shares since we initiated our stock buyback plan.
Turning to the fiscal year numbers for.
For the year ended June 32023, total revenue increased 6% from 18 million to $19 $1 million.
Recurring revenue for the same period grew 7% from $17 8 million to $19 million.
Total operating expenses increased 3% largely due to investments in the Archie M.
This was partially offset with E. R. T C payroll tax refund increases in bad debt and lower costs associated with software maintenance fees.
Income from operations increased from $4 $4 million to $5 $1 million, an increase of 15%.
Net income was $5 $6 million versus $4 million, an increase of 40%.
Net income to common shareholders grew 46% to $5 million or 27 cents per weighted average share compared to $3 4 million or 18 cents per weighted average share.
Turning now to cash flow and cash balances.
Total cash at June 32023 was $24 million compared to $21 5 million at the end of fiscal year 2022.
As of June 32023, the company had zero bank debt.
Fiscal year to date, we generated cash from operations of $8 9 million compared to $6 $1 million last year, an increase of 45%.
In the fourth quarter, we repurchased approximately 48000 common shares at an average price of $6 90 per share for a total of $328000.
The company has approximately $9 $5 million remaining on the $21 million total buyback authorization since inception.
We continue to gain momentum in the growth of recurring revenue delivering 80 plus percent gross margins double digit EPS growth.
We have $24 million cash in the bank no debt and a shrinking capitalization.
Currently we are paying a six cent dividend to common shareholders. We paid our first dividend in the second fiscal quarter and again in May and once again in August .
We also just announced our September dividend, which will be paid on or about November one.
Subsequent quarterly dividends will be paid within 45 days of the quarter's end.
As we've said previously our goal is to take half the annual cash generated from operations and returned to shareholders in the form of a dividend buying back additional common shares.
And as recently redeeming the preferred.
The other half goes into bank globally will be used to fund initiatives like traceability.
We also carefully evaluate M&A opportunities, but we are selective.
We certainly have ample dry powder, if the right opportunity comes along.
As I said before from time to time, the board will evaluate its capital allocation strategy and they are just the different levers, including the dividend buybacks, considering M&A opportunities paying down debt or other liabilities based on whichever lever is more favorable to shareholders at that time.
As part of the process the board of Directors recently announced our intent to redeem the preferred stock over the next three years.
After repurchasing our common stock paying off debt initiating a quarterly cash dividend and growing our cash reserves. This was the next logical step for a comprehensive capital allocation strategy.
That's all I have thanks, everyone for your time today at this point I'll pass the call over to Randy Randy.
Thanks, John .
For the last several years, we've made several key strategic decisions about our course, so far as you've heard from John's review of the quarterly and full year metrics. These decisions have demonstrated excellent financial results.
Our core business is based on compliance and supply chain management with additional services like our out of stock coffee and scan based trading.
Our core business is structurally profitable and generating very significant cash.
You heard John described the 7% growth in recurring revenue continued expense management, a 40% increase in GAAP profitability and at 50 plus percent growth in earnings per share.
This strategy creates a foundation for the business that we have today and more importantly supports our objective started traceability. The next major growth driver of our business.
The compliance model gives us tremendous credibility in the industry, we are by far the largest and best respected supplier retailer wholesaler supply chain network.
The results in our widespread industry endorsement.
As we often repeated on these calls we are driven by our customers not only do we offer technology that works, but we offer an old fashion level of human customer service robots ever.
Yeah.
As we continued to gain recognition as a dominant experts on traceability. We recently announced that we are leading the committee of food industry experts called the Repositrak Traceability Network Advisory committee or win back hard to say, but I think you get the idea. These are very highly respect.
Thought leaders and they're working with us to help their particular product categories in the food industry overall to have an interoperable low cost food traceability solution for compliance with Fizzler rule 204.
That they've chosen to work with us on these critical industry issues as well.
<unk> just say leased they are the chremzel a crem in the food industry.
Our industry presence, including our customer relationships our industry endorsements. The advisory committee created durable very significant competitive advantage for our Repositrak traceability network or as we call it our tea and.
This technical and reputation will lead of ours is growing up.
Others talk about traceability with some unproven not yet an actual use whatever but were actually doing traceability now live with our customers and to end with the technology that we've had in existence for some period of time.
As evil designed in close collaboration with the industry leaders. So we know it's a fit.
Our solution is agnostic as to whether customers also use some other additional system and this is a really important point.
We work with any labeling system any bar coding system any blockchain system really will work with any system at all we don't care, we provide the traceability interoperability layer. This is critical and it's value added to literally everyone across the supply chain.
Our suppliers say with 100 customers can't create 100 different custom label in systems to help them comply with each different customers of his ability to lead some particular label.
So suppliers see value in our interoperability approach immense value, we create inexpensive simplicity for suppliers.
Supplier who's already done the work to get connected to our RTL will we believe want to use our RTL with as many of these customers as possible why.
They've already done the onetime connection work done they've already paid our unlimited use fee for it. So it's good for the customer and it certainly helps us spread the word even at this early stage another of our new RT and supplier customers are working to take us to their customers and help the organic growth of <unk>.
Our network.
Distributors and wholesalers see value to their businesses based on speed and accuracy and frankly.
Lack of complication is critical to their success.
So new logistic complications like rule tool for frankly, a disaster, we streamline that enable compliance with the FDA rules and allow them to maintain their current processes and technologies.
Of course retailers loved the system.
For a retailer and then traceability helps them irrespective of the F. D. A rules they've always wanted more visibility into their supply chain, they've always wanted an easier way to recall products and we give that to them. We make it easy and every single respect and traceability is working now working now.
And actual customers, that's a very powerful message our way of doing it is alive and functioning.
So or where are we today in the if you think about the traceability lifecycle well.
Since March of 2023 we have signed two wholesalers and to self distributed retailers not pilots deployments. These four customers together with their 26 distribution centers potentially nearly 1500 suppliers.
Thousands of their stores are entering into the positive drag traceability network Artyem again as I said, we call. It no one else is actually dealing with real committed customers, they're talking and they're issuing press releases, we're doing it.
On boarding just the business. We have currently will be an extensive process, we recognize that it will likely take a year to be fully deployed.
We have a well defined process and amazing team of people holding our customers' hands as we lead them down the road. The FDA compliance no. One else has our real life experience and therefore understands the twists and turns and they'll have to face as they deploy.
Others are still at the concept stage, our preface is today being continually tuned we're on a path to add additional automation to the methodology over time of course.
So what's the bogey you might ask them, you already signed up wholesalers and retailers.
Onboarding just these four customers that we have today once fully implemented and deployed should generate somewhere in the area of $3 million to $4 million per year of additional <unk>.
Annual recurring revenue.
What are our customers feeling about our traceability program you might ask well so far rave reviews from both the hubs retailers and wholesalers as we call them as well as the suppliers.
Our customers acknowledge our technology and our team is the right solution, hence as I mentioned, we are already starting to get referrals from the early users to other retailers and wholesalers are trade associations are becoming more vocal in their support for our efforts. So at this point, we're not just optimistic but really pleased with the English.
Street position that we have and traceability beyond. These early adopters are pipeline is large and growing our hands are full for a bit as we choose our way through the first group of suppliers distributors and stores as.
As we scale, though onboarding is becoming easier as we come down the learning curve and add even more internal automation.
We are already seeing an acceleration in the process much more to come we've been here before when we first started doing compliance if you remember we know the drill.
Your one and compliance for example, we did 200 connections.
Two years later it was in the thousands scaling is our forte.
As we said last quarter, the traceability opportunity now that the rules are defined as emerging somewhat faster than we anticipated our T. N revenue in 2023 was better than we expected given our expectation frankly, if you will we believe our TN revenue will accelerate in calendar 2024.
So calendar 'twenty four will be excellent and twenty-five will likely be a crush theres no doubt about it the amount of work to get the industry doing traceability is complex and time consuming it's an enormous endeavor. We would welcome the F D. A pushing back the beginning even enforcement a year or so because of the depth and scope of.
The rule hopefully they will do that don't be surprised if they do.
There will be numerous reports of new technologies from startups that proposed to address the F. D. A rules through labeling or some other nifty idea.
We view these entrants actually as potential customers not competitors labor leave them alone in fact, we'll do the work that's needed labor aluminum Barcodes don't actually contain all of the information that the FDA requires it will not enable people to be compliant with labeling alone.
Did those promoting these solutions, we expect the kids at a grocery store for example to know which of the cases is the right one to scan with whichever new Nifty label was on the box no can't happen that way.
The landscape for how we do what we do is not competitive per se. We can work with any system that someone to adopt and help them. It's not a zero sum game, but we are confident that we are D component a key component to make industry wide traceability work in a cost effective manner the industry leader.
As you are apparently in agreement with us the industry requires a much more complete solution than simply labels barcodes or block trades.
An obvious question, though for investors is how does the RPM initiative effect, our operating cost simple well.
While the revenue opportunity is significant we do not expect a significant increase in our cost structure because of our automation ability in fact Trump's additional personnel costs, we do not anticipate a major step up in costs and we expect only a modest increase in our expenses as we onboard new customers.
We've been using home built tools within AI Foundation to help manage our internal processes for years that work continues in fact, we're doubling down on it so.
Let me see if I can summarize all of this we've built a consistent cash generation machine with six consecutive years of real GAAP profitability.
Two we're going to.
Tinder to deploy our capital allocation strategy buying back stock paying a dividend and growing our cash paying off debt now redeeming the preferred.
We maintain a fortress balance sheet with nearly $24 million in cash no debt and a current ratio of over six our business is sufficient we think it should be easy to model and we're positioned to scale. We will continue to shrink the number of shares both common and preferred outstanding and returning capital to the shareholder.
As by both buying back stock and paying a cash dividend so.
The net result of that should be faster revenue growth, even faster than net income growth and faster yet earnings per share growth. So with that I'd like to now open the call for questions operator.
Thank you at this time, we'll be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment, it may be necessary to pick up.
Your handset before pressing the star keys.
And our.
Our first question comes from the line of Tom Forte with D. A Davidson.
Do you foresee with your question.
Great, So Randy and John Congrats on the quarter and fiscal year.
I have a handful of questions I'm just going to go one at a time. So Randy you mentioned that the FX that may delay and compliance.
That could be helpful. You said can.
Can you expound on that.
Yeah.
Well, yeah, let's the background really as this hopefully you can hear me okay.
Having some phone issues, but net of the net position that we have is.
It can't get done not by us, but by the industry.
As we've said before there's 1.5 million businesses at a minimum that.
That have to change very fundamental processes in their supply chain to be able to do traceability. There's now two years and two months left until enforcement begins it can't happen.
So we're we're reasonably confident that the FDA will go whoa.
Let's give everybody an extra year and that would help us because it spreads out the rush it enables us to deal with customers on a more rational basis.
It would be excellent I'm not positive we're not at the F D. A.
Positive, it's going to happen, but if it does happen it certainly salutary to our business.
Okay and then the second question.
I think you've talked in the past about the opportunity at the restaurant level can you talk about that opportunity again, where you are in.
Yeah. The restaurant business is in some ways the opposite of our food business minions to have lots of stores not many suppliers, where food businesses tend to have retail food tend to have lots of suppliers not many stores.
So we've made some really terrific hires in marketing efforts and I think in the next six months, we're likely to begin to do a little bit of work and then from a little bit of work to a lot of work potentially in both restaurants and this was one of those that Qs or quick service restaurants.
And then are there opportunities to expand into other.
Fields, especially those where there's a lot of you know regulations oil and gas pharmaceutical how should I think about that.
Yeah fundamentally if you think about what our technology platform can do it.
It can measure whether or not a business is in conformity with the set of regulations or business rules et cetera.
So what we do could apply for example to department of Transportation regulation. It's R.
E O C regulations, we have some of our customers now beginning to use us in us well think of it as sustainability initiatives and whatnot. So all we care about is does someone know the rules.
And if they can explain the rules to us our system can impact enforce that a supplier or someone in that business is in conformity with that rule set but beyond that remember that once traceability becomes the dominant standard here in the U S. There's two other things that we think are going to happen number one.
John .
By the way, we're already seen as it's remarkable.
Traceability is going to expand from the initial list.
Likely almost all foods, we've already in fact this is interesting to note, we'll talk about it a little bit more later, the very first supplier literally the number one supplier who signed up for our service is in the onion business.
And onions are not covered by rule tool for that are not part of the traceability list, they're heavily recalled don't eat onions, they're heavily recalled but they're not on the list and the attitude of this company was going to be on the list traceability is better for me and better for my customers I'm going to do it.
So we think traceability will expand anyway within the U S. But it's only a matter of time remember how much of our food comes from outside the U S. Until this becomes the standard globally. So the opportunities are really very very large compared to what we see today.
Yeah.
Great and then I have a modeling question for John So John you talked about the conversion to recurring revenue in SaaS and things of that nature, but how should we think about your top and bottom line over the next 12 months, especially as you ramp the traceability effort.
Okay.
Sure. So as you heard it's who we are.
Forecast right now based on what contracts we had on hand at June 30 was $23 million. So there's your topline conservative assuming no growth.
And modest traceability, while obviously, that's not going to happen so whatever growth factor would come in from there you heard Randy and I, both say, it's about $3 million to $4 million. Once fully deployed will all of those will not start in July there'll be ladder. It in over the next 12 months, so what that looks like.
As good as mine, but starting with the top line up a modest $20 $3 million you heard me say it always takes $12 million to run. This place and then you have another $2 million on top of that of accounting depreciation and amortization stock comp so that pretty much gives you the P&L and you can see what our conversion is from.
From a revenue and bottom line into EPS. So I think it's pretty easy to model at this point with us effectively at 100% recurring revenue does that answer your question.
Yeah, Alright, and then last question for me and Thanks for taking my question. So you've talked about you gave some high level comments on where your thoughts are in strategic M&A can you talk about returning cash to shareholders, both buyback and the dividend side and on the dividend side.
Have you thought about increasing the dividend.
I think you have a pretty modest yield right now, but how do you think about potentially raising the dividend over time.
Oh.
Joanna you can take that one.
[laughter], that's got still got it.
[laughter].
Well, let me give you my opinion the C E O.
John mentioned, it and I think it's important to recognize that each year and even within a year, we're going to take several looks at where we are from a cash flow perspective. The intention was really still the same as we've stated historically half of each year's cash flow will go on the balance sheet to strengthen our how we look.
To our customer set because our customers are getting bigger.
The world is getting weaker and our customers wanted to see a strong partner. So we owe that to them. The other half of our cash flow free cash flow each year, we're going to decide between one of several possible levers are we going to pay an increased cash dividend.
That's certainly under consideration no decision yet, but it's under consideration are we going to buy back more stock. That's certainly under consideration we do that every year. So far and then finally, how much are we going to spend.
In terms of paying back the preferred but given ourselves three years to get that done redeemed. The preferred so all of those things are on the table, but definitely an increase in the cash dividend could be in the cards.
No I agree.
Yes.
No I agree.
I mean, I think the other element too is M&A, we've talked about that.
So if there's something that comes up strategically but to Randy's point, we have these levers so we put up 9 million for.
For fiscal 2020 free so if call it call it four and a half in the bag.
And four and a half you know going forward too we don't have any bank debt anymore. So logically one could assume that we would you know obviously were going to buy back. The preferred we have three years to do that the next logical solution to your point as far as the a modest yield on the common dividend.
B to increase that but no decision has been made yet.
Great. Thank you Randy Thank you Jon Thanks for taking my questions.
You bet. Thanks, Tom.
Our next question comes from the line of Chris because he is a private investor.
See with your question.
Hello, Good afternoon, and congratulations on the great results.
One breaks groups.
Oh I want to ask about the current quarter or are you going to see.
Of that our revenue for the current quarter or should we just be thinking about the current quarters, maybe like a quarter of the 20 million you've guided from current customers.
Well.
Separately, we've said and we haven't repeated it frequently is we should we're just not a quarterly company. We don't think about it in those terms, we think about it on an annual basis.
So we are as focused I think as a business can be an onboarding traceability.
As we mentioned, we're the only company actually doing traceability, everyone else is talking about traceability and issuing press releases.
It is very difficult it is intensive from a development perspective, and implementation perspective, a customer management perspective in every respect it is difficult to do so we are heads down completely focused on how do we do this number one right and we're doing that.
Two how do we do it more and more efficiently. We're focused on that we're making changes literally every week to our internal processes and technology to make it easier and faster.
And we have to keep our heads down doing that.
No.
What happens as we and our on boarding people, who are actually paying us is that there will be a ramp in terms of how we go from zero to several millions a year over the next year 18 months.
And it won't be exactly equal we just don't know the rate at which we can bring.
The pain customers into the system.
So the answer is the way our numbers should run Q1 is always the lowest of the year Q4 is always the highest because of the growth of the on boarding if you will in terms of traceability. So it will continue to increase throughout the year and hopefully for the next several years on that same basis.
Hopefully that answered your question.
Oh, yes definitely.
Our votes.
But youre traceability customers cope both of them decided to go in first I mean, the deadline is 26, obviously obvious you know not everybody wants to be liked right before the deadline, but.
For for whom is it more important to get it done now and that sort of thing.
Per square foot.
It says.
Or are there ways that doesn't play out.
Zing.
That is a fabulous Fabulous question. It's one we think about a lot.
Remember we've been in the compliance business for a number of years.
So the truth is we've developed really really good relationships with our customers we've been talking to our customers for several years about this traceability requirements literally years, so a number of them.
And thinking about their own business came to grips with the fact that doing a full implementation of traceability is anywhere from one to two years of work so.
So several of them simply in conjunction with US took a look at the calendar and said they don't want to be done in January of 2026. They Wanna be done ahead of that so that any any issues in terms of process and procedure on their part could be worked out so I would argue there sort of.
Let's call them conservative knowing that things in retail take a while they are all large systems, meaning one of them own several hundred stores actually.
They're all between two and 400 stores that they own one of them is a wholesaler with 2000 stores for which I'd say a wholesaler. Another one has I think 800 stores that it services.
When you're at that scale nothing goes fast and that's how they think so I think their decision to get started was really based on one how long might it take and since nobody has done it before no one has done it before and they and Cros.
Across thousands of items thousands of items and many many stores distribution centers and all of that complexity.
Why not allow yourself plenty of time.
So I think that's why they made the decision to get started and it's also why we're completely convinced that the FDA should back off and give people. Another year, we believe and remember we're in the market all the time talking to people.
There are some people will say well I don't need to think about that now Oh I need another year, and then I can start thinking about it and what we say to them is you won't get it done it's not a one year project it's longer than that.
And it's difficult to do well it I suppose to some people that sounds like sales talk it isn't it's true. So that's why we're we suspect that 'twenty four is very busy for us calendar 'twenty four and the calendar 'twenty five is gonna be a crush.
By the time the word is out the traceability is doable, but difficult.
They've been involves changing lots of things in your business.
Our phone will ring and the problem that the that we worry about is having to say to a customer God. We talked to you two years ago and you said you thought you could get it done in a year and now you're calling us and you want us to get it done in six months can't happen.
So 25 will be a crush and hopefully the F D. A backs off and gives the world at least another year two years would be better when more years is desirable.
So I hope that I know that was long winded, but hopefully that gave you. Some color around your question people, who are conservative wanted to start now because it is a bigger problem than they thought.
And then people will come in later and we're not sure they'll all get done.
We have reached the end of the question and answer session and I will now turn the call back over to management for closing remarks.
Thank you all appreciate your taking time. This afternoon, you know what to do if you have questions contact genre, Randy and we'll try and help.
Thanks, a lot thanks.
Everyone have a great day.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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Yeah.
[music].
Yes.
Yeah.
Uh huh.
Uh huh.
Uh huh.
[music].
Hum.
Uh huh.
Yes.
[music].
Yes.
Okay.
Yeah.