Q3 2024 ReposiTrak Inc Earnings Call
Operator: Greetings and welcome to the ReposiTrak fiscal third quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2.
Greetings and welcome to the Repositrak fiscal third quarter 2024 earnings call. At this time, all participants are in a listen only mode.
Speaker Change: Question and answer session will follow the formal presentation to ask a question you May Press Star then one on your telephone keypad.
Speaker Change: Draw. Your question. Please press Star then two.
Speaker Change: As a reminder, this conference is being recorded.
Operator: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jeff Stanlis, of FNK-IR. Mr. Stanlis, you may begin.
Speaker Change: It is now my pleasure to introduce your host Jeff stainless with F. N K I R. Mr. Stainless you may begin.
Jeff Stanlis: Thank you, Operator. Good afternoon, everyone.
Speaker Change: Thank you operator, and good afternoon, everyone. Thank you for joining us today for a pause attracts fiscal third quarter earnings call hosting the call today are Randy fields parts tracks, Chairman and CEO and John Merrill Repositrak C F O.
Jeff Stanlis: Thank you for joining us today for ReposiTrak's Fiscal Third Quarter Earnings Call. Hosting the call today are Randy Fields, ReposiTrak's Chairman and CEO, and John Merrill, ReposiTrak's CFO. Before we begin, I would like to remind everyone that this call could contain forward-looking statements about ReposiTrak within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not subject to historical facts.
Jeff Stanlis: Such forward-looking statements are based on current beliefs and expectations. ReposiTrak's remarks are subject to risks and uncertainties, from which actual results may differ materially. Such risks are fully discussed in the company's filings with the Securities and Exchange Commission. The information set forth herein should be considered in light of such risks.
Randall K. Fields: Before we begin wed like to remind everyone that this call could contain forward looking statements about repositrak within the meaning of the private Securities Litigation Reform Act of 1995 forward looking statements are statements that are not subject to historical facts such forward looking statements are based on current beliefs and expectations.
Speaker Change: Repositrak remarks are subject to risks and uncertainties, which actual results may differ materially.
Speaker Change: Such risks are fully discussed in the company's filings with the Securities and Exchange Commission. The information set forth herein should be considered in light of such risks Repositrak 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 in the financial results that we will discuss on.
Jeff Stanlis: ReposiTrak 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 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 repositrak.com to access the press release.
Speaker Change: Call investors can visit the Investor Relations section of the company's website at Repositrak Dot com to access the press release with all that said I would now like to turn the call over to John Merrill John The call is yours.
Jeff Stanlis: With all that said, I would now like to turn the call over to John Merrill. John, the call is yours. Thanks, Jeff.
John R. Merrill: Thanks, Jeff, and good afternoon, everyone. The March quarter of fiscal 2024 was yet another period of solid results. Before jumping into the financial results, I believe it is important for shareholders to take a moment and embrace the rearview mirror through the eyes of management and recognize some significant milestones we have achieved. During the March quarter, we completed onboarding hundreds upon hundreds of suppliers and their respective production facilities. This was no easy task, but we have done it before.
Speaker Change: Jeff and good afternoon, everyone. The March quarter for fiscal 2024 was yet another period of solid results.
John R. Merrill: Those new suppliers and their respective facilities are currently generating 5% of total recurring revenue, or $1 million during the fiscal year. The growth in total revenue considers the $1.4 million in high-touch, low-opportunity revenue that we sunsetted over the past 24 months, which we previously announced. There are another 5x facilities that once fully onboarded will add to our previously announced $3 to $4 million annual recurring revenue already in the queue since May of 2023.
John R. Merrill: Before jumping into the financial results I believe it is important for shareholders to take a moment and embraced the rearview mirror through the eyes of management and recognize some significant milestones we have achieved.
Speaker Change: During the March quarter, we completed onboarding hundreds upon hundreds of suppliers and their respective production facilities during the period.
Speaker Change: This was no easy task, but we have done it before.
Speaker Change: Those new suppliers and their respective facilities are currently generating 5% of total recurring revenue or $1 million during the fiscal year.
Speaker Change: The growth in total revenue considers the $1 $4 million and high touch low opportunity revenue that we sunset it over the past 24 months, which we previously announced.
Speaker Change: There is another five X facilities that once fully on boarded will add to our previously announced $3 million to $4 million annual recurring revenue already in the queue since may of 2023.
John R. Merrill: Therefore, by June 2024, we anticipate having 6 to 10,000 FSMA-204 facilities standing in line to be implemented. There are many nuances to onboarding. We learn more and more every day. Randy will add more color in his commentary.
Speaker Change: Therefore by June 2024, we anticipate having six to 10000 bismuth 204 facilities standing in line to be implemented.
Speaker Change: There are many nuances to onboarding, we learn more and more every day Randy.
Speaker Change: Randy will add more color in his commentary however, the bottom line, we are more confident than ever before that those customers in hand today will double the size of our annual recurring revenue in the next 24 to 36 months.
John R. Merrill: However, the bottom line, we are more confident than ever before that those customers in hand today will double the size of our annual recurring revenue in the next 24 to 36 months. Let's get to the quarterly numbers. Total revenue was up 5% for the March quarter. Recurring revenue was essentially 100% of total revenue up 6%. Operating expenses increased 12%.
Speaker Change: Let's get to the quarterly numbers.
Speaker Change: Revenue was up 5% for the March quarter.
Speaker Change: Recurring revenue was essentially 100% of total revenue up 6%.
Randall K. Fields: Operating expenses increased 12%, yes, we continue to invest in the Repositrak traceability network or our T N, adding more sales and implementation personnel to facilitate onboarding of sign ups.
John R. Merrill: Yes, we continue to invest in the ReposiTrak Traceability Network, or RTN, adding more sales and implementation personnel to facilitate the onboarding of signups. However, shareholders should note the prior year third quarter results reflect $1 million in lower operating expenses due to the receipt of our employee retention credit. In short, we applied for and received a $1 million Employee Retention Credit, or ERC, which provided a refund of certain payroll taxes incurred during the COVID period.
Shareholders should note the prior year third quarter results reflects $1 million and lower operating expenses due to the receipt of our employee retention credit.
Speaker Change: In short, we applied for and received a $1 million employee retention credit or ERC, which provided a refund of certain payroll taxes incurred during the COVID-19 period.
John R. Merrill: Obviously, the refund received in February of 2023 will muddy our comparative results for the third quarter of 2024. GNA costs were up 48%, again reflecting the ERC impact last year. Gap net income decreased 7%, again reflecting the ERC impact. Gap mid income to common shareholders decreased 7%. Earnings per share was $0.08 per share, unchanged from last year.
Speaker Change: Obviously, the refund received in February of 2023 will muddy our comparative results for the third quarter of 2024.
Speaker Change: G&A costs were up 48% again, reflecting the ERC impact last year.
Speaker Change: GAAP net income decreased 7% again, reflecting the ERC impact.
Speaker Change: GAAP net income to common shareholders decreased 7%.
Speaker Change: Earnings per share was <unk> <unk> per share unchanged from last year.
John R. Merrill: Year-to-date cash from operations was $5 million. We have over $24 million in the bank and no debt, and we continue to pay a quarterly cash dividend, boosted at 10% as you saw the board approved in November 2023. For several quarters, we have been discussing the FDA's FSMA Rule 204 mandate and the impact this will have on the food industry. The FDA's rule is scheduled for 2026. As we discussed last quarter, we are seeing an industry reaction far sooner than we anticipated, and we believe we will be the benefactor of it. The traceability mandate is increasingly being driven by the market from the top down rather than from government regulation.
Speaker Change: Year to date cash from operations was $5 million we.
Speaker Change: We have over 24 million cash in the bank and no debt and we continue to pay a quarterly cash dividend boosting at 10% as you saw the board approved in November 2023.
Speaker Change: For several quarters, we have been discussing the FDA says my rule tool for mandate and the impact this will have on the food industry.
Speaker Change: The Fda's mandate is scheduled for 2026 as we discussed last quarter, we are seeing an industry reaction far sooner than we anticipated and we believe we will be the benefactor of it.
Speaker Change: The traceability mandate is increasingly being driven by the market from the top down rather than from government regulations.
John R. Merrill: You are seeing this acceleration of a steady flow of press releases from us announcing suppliers joining the RTN. There are many, many more in the queue, and we are not announcing every edition, far from it. The revenue from these suppliers is currently 5% of our quarterly revenue, up from just 1 to 2% of revenue just nine months ago. We are investing heavily in sales, marketing, and implementation staff to process the pipeline. As Randy will discuss further, awareness among retailers is relatively high, but awareness among suppliers is quite low.
Speaker Change: You were seeing this acceleration and a steady flow of press releases from us announcing suppliers joining the Rts.
Speaker Change: There are many many more in the queue and we are not announcing every addition far from it.
Speaker Change: The revenue from these suppliers is currently 5% of our quarterly revenue up from just 1% to 2% of revenue just nine months ago.
Speaker Change: We are investing heavily in sales marketing and implementation staff to process to the pipeline.
Speaker Change: As Randy will discuss further awareness among retailers is relatively high but awareness among suppliers is quite low.
John R. Merrill: So when will this cadence of traceability signups translate into complete onboarding and hence revenue, you might ask? It takes approximately six to nine months once a customer signs up before meaningful revenue is generated. The MAT revenue is amortized over the subsequent 12 months. Randy will add more color in his commentary.
Randall K. Fields: So when will this cadence of traceability sign ups translate into complete onboard even enhance revenue you might ask.
Randall K. Fields: It takes approximately six to nine months once a customer signs up before meaningful revenue is generated.
Randall K. Fields: And that revenue is amortized over the subsequent 12 months.
Randall K. Fields: Randy will add more color in his commentary.
John R. Merrill: Again, the strategy has not and will not change. Take great care of the customer. Increase automation to expedite customer onboarding. Sort through the nuances of customer systems, sophistication of documentation, and ability to exchange data electronically.
Randall K. Fields: Again, our strategy has not and will not change.
Speaker Change: Take great care of the customer increase automation to expedite customer onboarding.
Speaker Change: Sort through the nuances of customer systems sophistication of documentation and ability to exchange data electronically.
John R. Merrill: We've been through this process before with our compliance solution. Our confidence has never been higher, and to summarize, we drive adoption, sign-ups, and onboarding, hence generate more recurring revenue, keep expenses in line, generate cash, and return cash to shareholders. Yes, it's that simple.
Speaker Change: We've been through this process before with our compliance solution.
Speaker Change: Our confidence has never been higher and to summarize we drive adoption sign ups and onboarding, hence generate more recurring revenue keep expenses in line generate cash and return cash to shareholders, yes, it's that simple.
John R. Merrill: They've said time and time again, it takes approximately $12 million in cash a year to run this place. Even with our investment in RTN during the nine months ended March 31, 2024, our gross margin and net margin still remain at 80% and 24%, respectively. Turning now to cash flow and cash balance. Total cash at March 31, 2024 was $24.5 million, compared to $24 million at the end of fiscal year 2023. Total cash at March 2024 reflects repurchasing over 2.2 million common shares, redeeming over 140,000 shares of preferred stock, paying off $6 million in bank debt, and returning over $2.4 million in cash to common shareholders in the form of a dividend since inception. Fiscal year to date, we generated cash from operations of $5 million despite our elimination of high-touch, low opportunity revenue.
As I've said time and time again, it takes approximately $12 million in cash a year to run this place.
Speaker Change: Even with our investment in <unk> during the nine months ended March 31, 2020 for our gross margin and net margin still remains at 80% and 24% respectively.
Speaker Change: Turning now to cash flow and cash balances.
Speaker Change: Total cash at March 31, 2024 was $24 5 million compared to $24 million at the end of fiscal year 2023.
Speaker Change: Total cash at March 2024 reflects repurchasing over $2 2 million common shares redeeming over 140000 shares of preferred stock paying a $6 million in bank debt and returning over $2 $4 million in cash to common shareholders in the form of a dividend since inception.
Speaker Change: Fiscal year to date, we generated cash from operations of $5 million, Despite our elimination of high touch low opportunity revenue.
John R. Merrill: Since inception, we have repurchased 2.2 million common shares for $6.13 per share, or a total of $13 million. Additionally, since inception, the company has redeemed over 140,000 shares of preferred stock at the $10.70 redemption price for circa $1.5 million. The remaining amount of preferred stock redemption is $7.5 million. As previously announced, the company anticipates redeeming all of the preferred stock issued in outstanding over the next three years. We paid out our March 31 quarterly cash dividend on or about May 10, 2024.
Speaker Change: Since inception, we have repurchased two 2 million common shares for $6 13 per share or a total of $13 million.
Speaker Change: Since inception, the company has redeemed over 140000 shares of preferred stock at $10 70, a redemption price for circa $1 $5 million.
Speaker Change: The remaining amount of preferred stock redemption of $7 $5 million.
Speaker Change: As previously announced the company anticipates redeeming all of the preferred stock issued and outstanding over the next three years.
Speaker Change: We paid out our March 31 quarterly cash dividend on or about May 10th 2024 as.
John R. Merrill: As previously announced, subsequent quarterly cash dividends will be paid within 45 days of the quarter's end on June 30, September 30, and December 31. Again, we will take half the annual cash generated from operations and return it to shareholders in the form of a dividend. Buying back additional shares of common and preferred shares or increasing the dividend, whichever lever makes the most sense at that time. The other half goes into the bank and will be strategically used to fund initiatives. From time to time, the board will continue to evaluate our capital allocation strategy and may adjust the different capital levers, whichever lever is more favorable to shareholders at that time.
Speaker Change: As we previously announced subsequent quarterly cash dividends will be paid within 45 days of the quarter's end of June 30 September 30, and December 31.
Speaker Change: Again, we will take half the annual cash generated from operations and returned to shareholders in the form of a dividend buying back additional shares of common and preferred shares or increasing the dividend whichever lever makes the most sense at that time.
Speaker Change: The other half goes in the bank and will be strategically used to fund initiatives.
Speaker Change: From time to time, the board will continue to evaluate our capital allocation strategy and may adjust the different capital levers whichever lever is more favorable to shareholders at that time.
John R. Merrill: That's all I have today. Thanks, everyone, for your time. At this point, I'll pass the call over to Randy.
That's all I have today. Thanks, everyone for your time at this point I will pass the call over to Randy Randy.
Randall K. Fields: Thanks, John.
Randall K. Fields: The Traceability Initiative is really accelerating. It's already far exceeded the expectations that we had, both in terms of the size of the market and the pace at which the market is being embraced. We originally thought that as FDA Rule 204 rolled out, it might cover as many as a total of, say, 6 to 10,000 suppliers and that we would get many or most of those suppliers ultimately into the network over a period of time. We were wrong.
Randall K. Fields: Traceability initiative is really accelerating its already far exceeded the expectations that we had both in terms of the size of the market and the pace at which the market is embracing it.
Randall K. Fields: We originally thought that as FDA rule tool for rolled out it might cover as many as a total of say six to 10000 suppliers.
Speaker Change: And that we would get many or most of those ultimately into the network over a period of time, we were wrong.
Randall K. Fields: We are likely to have nearly 10,000 suppliers in our queue by the end of this fiscal year in June. Incidentally, by Q. We mean suppliers to retailers and wholesalers, who are or will be mandated by their customers to use the traceability network. In case you're wondering, the slippage from what we call Q to ultimate revenue is typically not significant. In terms of timing, we originally thought the industry adoption would be tied to the FDA deadline in 2026. But again, we were wrong.
Speaker Change: We are likely to have nearly 10000 suppliers in our Q by the end of this fiscal year in June.
Speaker Change: Incidentally by Q1.
Speaker Change: We mean suppliers for retailers and wholesalers.
Speaker Change: Who are or will be mandated by their customers to use the traceability network.
Speaker Change: In case, you're wondering the slippage for what we call Q to ultimate revenue is typically not significant.
Speaker Change: In terms of timing, we originally thought the industry adoption would be tied to the FDA deadline in 2026.
Speaker Change: Again, we were wrong retailers or blow right past that deadline and are driving the adoption at an accelerated pace right now.
Randall K. Fields: Retailers are blowing right past that deadline and are driving adoption at an accelerated pace right now, both from the scope of suppliers covered, as well as the deadline for being traceability ready. What happened was that several large retailers and wholesalers concluded that they could not easily run multiple processes in their business for Rule 204 foods versus other kinds of foods from a purely operational perspective. The result is that these large retailers and wholesalers are now requiring all food, not just the narrow list from the FDA, must conform to the traceability standards that they've set. That means that market competitive forces are now taking over from FDA mandated standards to drive traceability across the industry. In short, we're not just dealing with the narrow FDA list anymore but with all
Speaker Change: Both of them the scope of suppliers covered as well as the deadline for being traceability ready.
Speaker Change: What happened was that several large retailers and wholesalers concluded that they could not easily run multiple processes in their business for rule tool for foods versus other kinds of foods from a purely operational perspective.
The result is that these large retailers and wholesalers are now requiring all foods not just the narrow list from the FDA less conformed to the traceability standards that they've set.
Speaker Change: That means that market competitive forces are now taking over from FDA mandated forces to drive traceability across the industry.
Speaker Change: In short, we're not just dealing with the narrow FDA list anymore, but all foods increasingly both the total size of the market and the speed of adoption.
Randall K. Fields: Increasingly, both the total size of the market and the speed of adoption. Today, traceability revenue represents about 5% of our annual revenue. That's about a million dollars. This one million reflects the small proportion of suppliers in our queue who have already been onboarded, provided the necessary data, and now are being billed. I'll talk about the onboarding process more in a minute. But the point is that the opportunity in hand in the queue from suppliers tied to retailers who've already selected us is many times larger than our current traceability revenue. We said Track and Trace would double the revenue of the company over the next three years or so. In view of what we see now, we certainly stand by it.
Speaker Change: Today traceability revenue represents about 5% of our annual recurring revenue that's about a $1 million a year.
Speaker Change: This 1 million reflects the small proportion of suppliers in our Q have already been on boarded provided the necessary data and now are being billed I'll talk about the onboarding process more in a minute, but the point is that the opportunity inherent in the queue from suppliers tied to retailers, who already selected us is many times larger than <unk>.
Speaker Change: Right correct traceability revenue.
Speaker Change: We said track and trace with double the revenue of the company over the next two years or so.
Speaker Change: What we see now we certainly stand by that.
Speaker Change: Okay.
Randall K. Fields: In spite of this market-driven pressure at retail and wholesale, however, traceability awareness among suppliers is actually relatively low still, surprisingly low, actually. That's one of the reasons we're putting out as many press releases as we are. We have also had to increase our sales and marketing staff to reach out to each impacted supplier, often several times, to explain the rules, explain how they're impacted, and help them gather the necessary information to comply. This isn't easy, and it's an inherently time-consuming process. Unknown Speaker 05.
Speaker Change: In spite of this market driven pressure at retail and wholesale however, traceability awareness among suppliers is actually relatively low still surprisingly low actually that's one of the reasons, we're putting out as many press releases is we are we have also had to increase our sales and marketing staff to reach out to each impacted supply are often.
Speaker Change: Several times to explain the rules explain how they're impacted and helped them gather the necessary information to comply.
Speaker Change: In D C and it's an inherently time consuming process, but it's essential.
Randall K. Fields: In the long run, though, it actually helps us gain thought leadership with these thousands of suppliers that we're bringing into the network. Remember, just a few months ago, we thought by June, we would have a queue of suppliers that could increase our revenue by three to four million per year when they were on board. We now think that number could be as much as 20 million when onboarding is completed again over the next couple of years.
Speaker Change: Long run, though it actually helps us gain thought leadership with these thousands of suppliers that we're bringing into the network remember just a few months ago. We thought by June we would have a queue of suppliers that could increase our revenue by $3 million to $4 million per year. When they were on boarded we now think that number could be as much as $20 million went on.
Speaker Change: <unk> has completed again over the next couple of years, obviously this can't become revenue all at once.
Randall K. Fields: Obviously, this can't become revenue all at once. In fact, we're focused on automating every aspect of the process that we can, and we're getting better and better and faster and faster at it. The fact is, however, learning the right automation techniques is time-dependent, not number of personnel dependent. Nine women, remember, in a room for a month do not make a baby.
Speaker Change: <unk> were focused on automating every aspect of the process that we can and we're getting better and better and faster and faster at the.
Speaker Change: The fact is however, learning the right automation techniques as time dependent not number of personnel dependent.
Speaker Change: Nine women remember in a room for a month do not make a baby.
Randall K. Fields: Once onboarded, our systems make end-to-end traceability pretty simple. But perhaps you wonder why it's likely to take that long. Well, there are a number of steps in what we're calling the onboarding process. It's a sequence of steps, not just one.
Speaker Change: <unk> on boarded our systems make and then traceability pretty simple.
Speaker Change: But perhaps you wonder why it's likely to take that long well theres a number of steps in what we're calling the onboarding process. It's a sequence of steps not a single step first we worked with the hub, meaning the retailer large wholesaler to determine what suppliers need to be added and in what order, we should do that for them.
Randall K. Fields: First, we work with the hub, meaning the retailer or large wholesaler, to determine what suppliers need to be added and in what order we should do that for them. From there, we work with each of the suppliers to understand the products they produce, the shipment destinations, quantities, facilities, et cetera. And along the way, we're educating suppliers about traceability, the rules involved, and why it's important. Many suppliers, in fact, thought they were exempt. We don't do soft cheeses or seafood.
Speaker Change: From there we work with each of the suppliers to understand the products they produce the shipment destinations quantities facilities et cetera.
Speaker Change: Along the way, we're educating the supplier about traceability rules involved and why it's important.
Suppliers effects out they were exempt we don't do soft cheeses or seafood.
Randall K. Fields: But when they learn that their largest customers, perhaps several of their largest customers, are mandating traceability, even if their products are not on the FDA list, it's a wake-up call. The sheer number of suppliers is one challenge, but that's actually the smallest challenge. Each supplier is unique. There's no standardization of data collection.
Speaker Change: But when they learned that their largest customer perhaps several of their largest customers are mandating traceability, even if their products are not on the FDA list, it's a wake up call.
Speaker Change: The sheer number of suppliers is one challenge, but that's actually the smallest challenge each supplier's unique there is no standardization of data collection Theres language issues. Some don't have much in the way of computers in fact, 70% of the suppliers don't even have an it department.
Randall K. Fields: There are language issues. Some don't have much in the way of computers. In fact, 70% of the suppliers don't even have an IT department. Some data is collected in files, others scribbled on legal paper. We have to navigate all of that, helping the supplier understand what data is required, when we have to get it, and setting them up in our plan. Next, after identifying and contacting the suppliers, we move to what we call the technical setup stage. We have to determine where each supplier stores the critical tracking elements and KDEs that are required by the regulation.
Speaker Change: Some data is collected and files other scribbled on a legal pad.
Speaker Change: We have to navigate all of that helping the supplier understand what data is required when we have to get it and setting them up in our platform.
Speaker Change: Next after identifying contacting the supplier as we move to what we call. The technical setup for Onboarding, we have to determine where each supplier stores their critical tracking elements and KD easier to required by the regulation.
Randall K. Fields: We have to understand what systems the supplier uses and where those elements reside. Next, we assist the supplier in determining how to extract those critical data elements and then transmit them to us each time there's a shipment. Finally, we work with the supplier on their preferred form of data transmission, sort of wash, rinse, repeat. We have to do this many times with every supplier, encountering specific challenges with each supplier. And we have to do this to determine how to best automate the project. And, by the way.
Speaker Change: We have to understand what systems supplier uses where those elements reside.
Speaker Change: Next we assist the supplier in determining how do we extract those critical data elements and then transmit them to us each time there is the shipment.
Speaker Change: Finally, we work with the supplier on their preferred form of data transmission.
Speaker Change: Sort of wash rinse repeat we have to do this many times with every supplier in calendar specific challenges to each supplier and we have to do this to determine how to best automate the process and by the way.
Randall K. Fields: If there were a competitive startup with no experience of dealing with food suppliers like this, it's certain to be derailed. What we've been doing for years is just this. It's one of our greatest competitive advantages. It's also important to remember that we already have tens of thousands of suppliers with whom we have a customer relationship through our compliance. As we are now climbing the onboarding mountain, we're also continuing to add to our very large sales pipeline.
Speaker Change: If they were a competitive startup with no experience in dealing with food suppliers like this it's certain to be derailed.
Speaker Change: What we've been doing for years is just this is one of our greatest competitive advantages. It's also important to remember we already have tens of thousands of suppliers.
Speaker Change: Whom we have a customer relationship from our compliance work.
Speaker Change: As we are now climbing the Onboarding mountain. We're also continuing to add to a very large sales pipeline what were seeing here is even though the retailers and wholesalers. We have committed today will bring as many as 10000 suppliers into the network, we will be bringing on more and more suppliers from.
Randall K. Fields: What we're saying here is, even though the retailers and wholesalers we have committed today will bring as many as 10,000 suppliers into the network, we will be bringing on more and more suppliers from the retailers and wholesalers that are in our queue. The result is that 10,000 is really not the end, but closer to the beginning of what we see for traceability. Obviously, it will take time for that opportunity to fully translate to recurring revenue, but it's going to happen. Scaling like this is not new, for us at least.
Speaker Change: From the retailers and wholesalers that are in our Q <unk>.
Speaker Change: The result is that the 10000 is really not the end, but closer to the beginning of what we see for traceability.
Speaker Change: Obviously, it will take time for that opportunity to fully translate to recurring revenue, but it's going to happen.
Speaker Change: Scaling like this is not new for us at least what's new for US is simply the specific FDA requirements.
Randall K. Fields: What's new for us is simply the specific FDA requirements. Competition, It's important to remember that most suppliers will end up with more than one system. As it turns out, most everyone, we believe, will use the network that we've created, the ReposiTrak Traceability Network, as a base and use other labeling and marketing systems on top of our solution. The great news is that we've positioned ourselves with both our technology and our business model and pricing to be the core traceability solution. Market share is important, honestly, but it's not critical.
Speaker Change: Competition.
Speaker Change: It's important to remember that most suppliers will end up with more than one system.
Speaker Change: So it turns out most everyone. We believe we'll use the network that we've created the Repositrak traceability network, because the base system and use other labeling and marketing systems on top of our solutions.
Speaker Change: The great news is that we've positioned ourselves with both our technology and our business model and pricing to be the core traceability solution for the market market share is important honestly, but it's not critical.
Randall K. Fields: We have and will continue to spend carefully on sales and marketing to support the RTN as well, and we'll do whatever is necessary to stay in our customer-centric position. When our customers are successful, they will buy more. We know that. It's our foundational belief.
Speaker Change: We have and will continue to spend carefully on sales and marketing to support the RTL as we call. It and we'll do whatever is necessary to stay on our customer centric position.
Speaker Change: When our customers are successful they will buy more from US we know that it's our foundational belief and.
Randall K. Fields: And we're not stopping at traceability. In point of fact, we already have a number of exciting product additions that we'll follow on and amplify the value of our traceability solution. We're already seeing a lot of interest in these follow-on applications from our customers. So today, traceability; tomorrow, much, much more.
Speaker Change: And we're not stopping the traceability and point of fact, we already have a number of exciting product additions that will follow on and amplify the value of our traceability solution.
Speaker Change: We're already seeing a lot of interest in these follow on applications from our customers. So today traceability tomorrow much much more.
Randall K. Fields: While we're laser focused on traceability, our compliance and supply chain businesses also continue to grow and generate increased cash flow. Even today, our annual recurring revenue covers close to twice our fixed costs, supporting a pretty robust return of capital to shareholders. And keep in mind, we have deprioritized certain high-touch, low-opportunity revenue engagements. More or less a million over the last 24 months, but simultaneously grown our annual recurring revenue, grown gap net income even more, grown earnings per share even faster, and expanded our cash generation. Traceability will do this even faster for us going forward. So, let me summarize.
Speaker Change: While we're laser focused on traceability, our compliance and supply chain businesses also continued to grow and generate increased cash flow even today. Our annual recurring revenue covers close to twice our fixed costs supporting pretty robust return of capital to shareholders.
Speaker Change: And keep in mind, we have deep prioritize certain high touch low opportunity revenue engagements.
Speaker Change: More or less a million over the last 24 months, but simultaneously grown our annual recurring revenue grown GAAP net income even more grown earnings per share even faster and expanded our cash generation.
Speaker Change: Traceability will do this even faster for us going forward. So let me summarize what we can continue to take great care of our customers to we.
Randall K. Fields: One, continue to take great care of our customers, too. We will continue to deploy our capital allocation strategy, buying back stock, both common and preferred, paying the dividend, and growing our cash balance. As we did last year, the board will periodically review the capital allocation strategy, adjusting the dividend and other levers we have based on our cash generation earnings per share, just as they did with the dividend in November of 2023.
We will continue to deploy our capital allocation strategy buying back stock, both common and preferred paying the dividend and growing our cash balance as we did last year. The board will periodically review the capital allocation strategy adjusting the dividend and other levers we have based on our cash generation earnings per share just as they did with the.
Speaker Change: Dividend in November of 2023.
Randall K. Fields: As our results grow, we expect to increase the dividend, while at the same time continuing to add cash to the balance sheet, further reinforcing our financial position. We are maintaining a Fortress balance sheet with nearly $25 million in cash, no debt, even after the last few years of buying back over 2 million shares of common stock, paying off $6 million in bank and other debt, and redeeming the preferred and paying out of cash.
Speaker Change: As our results grow we expect to increase the dividend at the same time continuing to add cash to the balance sheet further reinforcing our financial position.
Speaker Change: Three we are maintaining a fortress balance sheet with nearly $25 million in cash no debt. Even after the last few years of buying back over 2 million shares of common stock paying off $6 million in bank and other debt and redeeming the preferred and paying out a cash dividend.
Randall K. Fields: Hopefully, you can hear how optimistic, in fact, confident I am. And with that, let's open it up now for questions. Operator? Thank you. We will now begin the question.
Hopefully you can hear how optimistic in fact confident that I am and with that let's open it up now for questions operator.
Speaker Change: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.
Operator: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Thomas Forte with Maxim Group. Please go ahead.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Thomas Forte with Maxim Group. Please go ahead.
Thomas Ferris Forte: Great, so first, congrats Rainey, and congrats John. I have three questions, I'll go one at a time. So you gave excellent commentary on the current state of the business. I was hoping you could quantify, in 30 to 60 seconds, your ability to execute from an onboarding standpoint traceability today versus six months ago and then quantify how much faster you'll be six months from now.
Thomas Ferris Forte: Great. So first congrats Randy Congrats Jon I have three questions I'll go one at a time. So you gave excellent commentary, but Randy or John on the current state of the business I was hoping you could quantify.
Thomas Ferris Forte: In 30 to 60 seconds your ability to execute from an onboarding standpoint, traceability today versus six months ago, and then quantify how much faster you will be six months from now.
Randall K. Fields: Tough, tough question. Yeah, but certainly an interesting question.
Speaker Change: Tough tough question.
Speaker Change: The same thing.
Randall K. Fields: Six months ago, we were doing a couple per week. We're now at the point that we can do, say, 50 to 70 per week. And in six months, we'll be at the point where we think we can do 500 to 1,000. So the pace is accelerating pretty dramatically.
Speaker Change: Yeah.
Speaker Change: But certainly an interesting question six months ago, we were doing a couple per week.
Speaker Change: We're now to the point that we can do say 50 to 70 per week.
Speaker Change: And then six months will be to the point, where we think we can do 500 to 1000 per week.
Speaker Change: So the cadence is accelerating pretty dramatically.
Randall K. Fields: Our automation plan has been converted into execution, and the beginning stages of that will be rolled out over the course of the next few months. The queue is much larger, as we said, than we anticipated at this moment in time. A few months ago, we said that at this moment in time, meaning the end of our fiscal year, there might be as many as 2,000 suppliers. At this point, we're pretty comfortable saying it looks like it's going to end north of 10,000 and could be significantly more.
Speaker Change: Our automation plan.
Speaker Change: <unk> has been converted into execution.
In the beginning stages of that will be rolled out over the course of the next few months.
Speaker Change: The Q is much larger as we said then we anticipated that this moment in time a few.
Speaker Change: Two months ago, we said that at this moment in time, meaning the end of our fiscal year it might be as many as 2000 suppliers.
Speaker Change: At this point, we're pretty comfortable saying it looks like it's going to end north of 10000.
Speaker Change: And could be significantly more so the reality is.
Randall K. Fields: So the reality is the marketplace is moving much more quickly than we originally anticipated. Unknown Attendee, Jeff Stanlis, ReposiTrak. So it's coming along pretty well. It's coming along really nice. And remember, at the end of the day, it's not how fast we... It's how well we can do it. Terribly proud of the team. We're handling them at a fabulous rate right now, and it'll only get better with automation.
Speaker Change: The marketplaces is moving much more quickly than we originally anticipated.
Speaker Change: And our automation is coming just did exactly at the right time there'll be multiple iterations of that automation technology.
Speaker Change: And we wanted to iterate that at the rate of about one turn per month once it's installed and that'll be as I said before the end of the fiscal year in June.
Speaker Change: So it's coming along pretty well.
Speaker Change: Its coming along really nicely.
Speaker Change: And remember at the end of the day, it's not how fast we can do it it's how well we can do it.
Speaker Change: And I'm terribly proud of the team because we're handling them at a fabulous rate right now and it will only get better with automation.
Thomas Ferris Forte: Thank you, Randy. My second question then is, so if you quantified the rate of onboarding six months ago today, six months from now, I feel like when you first discussed this opportunity, you were concerned about adoption happening too quickly and your ability to fully capture the opportunity. So I'm wondering at that rapid pace.
Randall K. Fields: Alright. So then thank you Randy My second question then is so if you quantified the rate of on boarding six months ago today, six months, where now I feel like when you first discussed this opportunity.
Speaker Change: You were concerned about.
Speaker Change: Option happening too quickly.
Randall K. Fields: And your ability to sell.
Randall K. Fields: Fully capture the opportunity.
Speaker Change: So I'm wondering with that rapid pace.
Thomas Ferris Forte: Unknown Attendee, Jeff Stanlis, Unknown Attendee, Jeff Stanlis, Unknown Attendee, Jeff Stanlis,
Speaker Change: Onboarding.
Speaker Change: Now more confident in your ability to capture the whole opportunity.
Randall K. Fields: Well, the real change is not in the rate of adoption. It's really in the scale of adoption. And let me, let me explain that.
Speaker Change: Well the real change is not in the rate of adoption, it's really in the scale of adoption and then let me let me explain that.
Randall K. Fields: Our original view, which turns out to be wrong, was that people would do the Rule 204 idea, meaning 7-8% of the products in their stores would be covered under the so-called Rule 204 by the FDA. And if you remember, what we said was, we think that's very difficult to execute, to sort this from that. This one's Rule 204, that one's not.
Speaker Change: Our original view, which turns out to be wrong was that people would do the rule tool for idea, meaning 7% to 8% of the products in their stores would be covered under the so called rule tool for by the FDA.
Speaker Change: And if you remember what we said was we think thats very difficult to execute to sort. This from that this one's rule tool for that one's not in other words operationally, we were convinced that people would find it to be very difficult to execute.
Randall K. Fields: In other words, operationally, we were convinced that people would find it very difficult to execute, and that, therefore, and this is where the error lies, ultimately, they would say it's easier just to do everything. It's safer for consumers. And, in fact, it's a single process, less expensive to execute. Let's just find a way to do everything.
Speaker Change: And that therefore, ultimately and that's where the error occurred.
Speaker Change: Ultimately they would say it's easier just to do everything it's safer for consumers.
Speaker Change: In fact, it's a single process less expensive to execute let's just find a way to do everything we were stunned when one of the largest retailers in the country. In fact, the largest last December made the decision to do that to go against all of the products not just the FDA list.
Randall K. Fields: We were stunned when one of the largest retailers in the country, in fact, last December made the decision to go against all of the products, not just the FDA. So what's happened is the size of the prize, if you will, the size of the market increased by 10, 12 times, 10X, 12X overnight. Others are now looking at that as a strategy, which means that the number of suppliers from the existing customers, or hubs, as we call them, that we have, potentially goes up by eight or 10. So the reality is it wasn't the pace of adoption; it was the scale of adoption, which appears to have substantially changed. Now, having said that, adoption is adoption. Here's the difference.
Speaker Change: So what's happened is the size of the prize if you will the size of the market increased by 10, 12 times Tenex 12 X overnight.
Speaker Change: Others are now.
Looking at that as a strategy, which means that the number of suppliers from the existing customers.
Speaker Change: Our hubs as we call them that we have to do potentially goes up by eight or 10 times.
Speaker Change: So the reality is it wasn't the pace of adoption. It was the scale of adoption, which appears to be very substantially changed.
Speaker Change: Now, having said that the adoption is adoption here's the difference.
Randall K. Fields: I think it's important to remember. If the FDA is telling you that you are covered by their new rule for traceability, the odds are pretty good you've heard of it. So if you're a produce person, for example, you know that much of the produce arena is now covered by Rule 204. But what about people who make cookies? They didn't know anything about this.
Speaker Change: It's important to remember it.
Speaker Change: If the FDA is telling you that you that you are covered by their new rule for traceability. The odds are pretty good you've heard of it. So if you're a produce person. For example, you know that much of the produce arena is now covered by rule 204.
Speaker Change: Well, what about what about the people make cookies.
Speaker Change: Didn't know anything about this they were not covered are not covered by rule too old for theres simply being covered by a change in industry standards that says we're going to trace everything.
Randall K. Fields: They were not covered are not covered by rule. They're simply being covered by a change in industry standards that says we're going to trace every. So the reality is this new group of prospective traceability suppliers has a lower level of awareness than the original group that the FDA targeted. It's incredibly good news.
Speaker Change: So the reality is this new group of prospective traceability suppliers has a lower level of awareness than the original group that the FDA targeted it's incredibly good news it's just.
Randall K. Fields: It's just, there are just a lot of companies to be talked about, and at the same time, now we're experiencing, as we expected, right on plan. [inaudible] Just in this last week, we've had two or three new hubs coming into the network, which increases the number of suppliers, etc. So we've been here before. It's important to remember when we did compliance, which is similar, not exactly the same, but similar. We went from zero to over 100,000 facilities over the course of fiber.
Speaker Change: It's just a lot of companies to be talking to.
Speaker Change: And at the same time now we're experiencing as we expected right on plan.
Speaker Change: New hubs, many new retailers and wholesalers joining our network.
Speaker Change: Just in this last week, we've had two or three new hubs.
Speaker Change: Coming into the network, which increases the number of suppliers etcetera. So we've been here before important to remember when we did compliance which is similar not exactly the same but similar.
Speaker Change: We went from zero to over 100000 facilities over the course of five or six years.
Randall K. Fields: We think that we can reproduce that effort, and that makes us a very different company for sure. Hopefully, that was a good answer to your question, Tom. Yeah, that was a good answer. All right, so my next two questions are not as exciting, I apologize.
Speaker Change: We think that we can reproduce that effort.
Speaker Change: And that makes us a very different company for sure.
Speaker Change: Hopefully that was a good answer to your question Tom.
Tom: I always get answer alright. So my next two questions that are not as exciting I apologize, but can you give your current thoughts on.
Randall K. Fields: But can you give your current thoughts on potentially pursuing either an adjacent market in restaurants or another regulated market in healthcare? Unknown Speaker Given how busy we are literally at this moment in time, heads down, highly focused on onboarding what we've got in our hands, it would be a distraction to try and do something too adjacent. Now, having said that, we're also looking at some relationships that might take us deeper into adjacent spaces where we might, for example, just be, what I'm going to call the back-end system.
Speaker Change: Potentially.
Speaker Change: Hearing either in adjacent market in restaurants, or another regulated market in health care.
Speaker Change: Given how busy we are literally at this moment in time heads down highly focused on.
Speaker Change: On on boarding what we've got in our hands.
Speaker Change: It would be a distraction to try and do something to adjacent now.
Speaker Change: Having said that we're also looking at some relationships that might take us deeper into adjacent spaces, where.
Speaker Change: We might for example, just be I'm going to call. It the backend system and let others represent us. So we're looking to add some strategies and some possible relationships that could take us much more deeply into foodservice than we already are going to be anyway.
Randall K. Fields: Unknown Attendee, Jeff Stanlis, ReposiTrak, with more of a specialization. In terms of healthcare, it's just too far afield for the moment. I think once we're scaling at the level that I would like to see, at the rate of multiple hundreds of suppliers per week, then we'll have the luxury of focusing on some other options.
Speaker Change: With more of a specialization in terms of health care. It is just too far afield for the moment.
Speaker Change: I think once we're scaling at the level that I would like to see as you know the rate of multiple hundreds of suppliers per week, then that will have the luxury of focusing on some other opportunities.
Thomas Ferris Forte: Great. Last question, and then I always like to ask this one.
Speaker Change: Great last question and then I always like that this one.
Thomas Ferris Forte: Can you give your current thoughts on M&A opportunities? I imagine you're getting presented with a lot of opportunities, even those at some, you know, maybe fire sale prices. What's your current view?
Speaker Change: Can you give your current thoughts on M&A opportunities I imagine youre getting presented a lot of.
Speaker Change: Opportunities, even those that sort of you know maybe at fire sale prices, what's your current view.
Randall K. Fields: In the last few months, it seems to have slowed down a little bit. We're still seeing interesting opportunities being presented to us, but nothing that is so exciting that we would be willing to risk both our capital and, more importantly, our managerial focus on what we've got. Our plate is really full. We're converting this now to revenue at an increasingly rapid rate. Every month feels faster than the month before.
Speaker Change: In the last few months it seems to have slowed a little bit we're still seeing interesting.
Speaker Change: Opportunities being presented to us.
Speaker Change: But nothing that is so exciting that we would be willing to risk both our capital and more importantly, our managerial focus on what we've got.
Speaker Change: Our plate is really full.
Speaker Change: We're converting this now to revenue at an increasingly rapid rate every month.
Speaker Change: Feels faster than the month before and remember each one of these suppliers in this queue is worth a.
Randall K. Fields: And remember, each one of these suppliers in this queue is worth a couple of thousand dollars, more than a couple of thousand dollars a year. So 10,000 means it's north of a $20 million bogeyman that we have at the front door wanting to come in. So month by month, we want to chew through that and make the backlog values, if you will, revenue values. So right now, M&A is not the center of our play, say to leave. Thanks for taking the time to answer.
Speaker Change: A couple of thousand dollars more than a couple of thousand dollars a year to us. So 10000 means it's north of a $20 million bogey that we have at the front door wanting to come in.
Speaker Change: So.
Speaker Change: Month by month, we wanted to chew through that and make the backlog values. If you will revenue values. So right now M&A is not the center of our plate say the least.
Thomas Ferris Forte: Thanks for taking my questions. Congratulations, Rainey. Congratulations, John. Thank you.
John R. Merrill: Thanks for taking my questions Congrats on congrats John.
Speaker Change: Thank you.
Thanks.
Operator: Again, if you have a question, please press star then 1. If there are no further questions, this will conclude our question and answer session. I would like to turn the conference back over to Randy Fields for any closing remarks.
Speaker Change: Again, if you have a question. Please press Star then one.
Seeing no further questions. This will conclude our question and answer session I would like to turn the conference back over to Randy fields for any closing remarks.
Randall K. Fields: Thank you all for taking the time this afternoon. We are, you've probably never heard us as confident and simultaneously excited about the futures we have. Unknown Attendee, Jeff Stanlis, Unknown Attendee, Jeff Stanlis, purely an executional exercise, and in my business lifetime, I could not be any more certain or prouder of our team at the execution. took compliance from zero to 100,000 facilities over about five years or so.
Speaker Change: Thank you all for taking the time. This afternoon, we are you've probably never heard us.
Randall K. Fields: As confident and simultaneously excited about the futures we have.
Randall K. Fields: Year ago same time, it was what I'd call an opportunity.
Randall K. Fields: Now it is.
[noise] purely an execution will exercise.
Randall K. Fields: And.
Randall K. Fields: In in my in my business lifetime, I could not be.
Randall K. Fields: Any more certain or prouder of our team at the execution aspect of this business, we took compliance from zero to 100000 facilities over about five years or so.
Randall K. Fields: And I'm quite happy. So thanks for the vote of confidence. We feel really, really good about where we are. Busy as hell, I think is the best way to put it. And happy. So thanks for spending the time with us, and we'll talk to you next quarter.
Randall K. Fields: And I'm quite confident we're going to do the same again.
Randall K. Fields: So thanks for the vote of confidence we feel really really good about where we are.
Randall K. Fields: Busy as Hell I think is the best way to put it a happy busy so thanks for spending the time with us and we'll talk to you next quarter.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: [music].