Q4 2024 ReposiTrak Inc Earnings Call

Speaker Change: Greetings and welcome to the Rapada Track Cisco Col. 4th quarter, 2024, Ernest Col.

Operator: Carter, 2024 Earnings Call. At this time, all participants are in a listen-only mode. If anyone sure require operator assistance during the conference, please press star zero on your telephone keypad.

Speaker Change: With this time, all participants are on a listen-only mode. If anyone sure require operator systems during the conference, please press star zero on your telephone keypad. A brief question and answer session will follow the formal presentation. As our reminder, this call is being recorded.

Operator: A brief question-and-answer session will follow the formal presentation. As a reminder, this call is being recorded.

Rob Fink: I would now like to turn the call over to Rob Fink with Fink IR. Mr. Fink, you may begin.

Speaker Change: I would now like to turn the call over to Rob Fink with Fink IR. Mr. Fink, you may be good.

Rob Fink: Thank you, operator, and good afternoon, everyone. Thank you for joining us today. For the ReposiTrak fiscal fourth quarter earnings call.

Rob Fink: Thank you, operator and good afternoon everyone. Thank you for joining us today for the composite track Fiscal Fourth Quarter earnings call.

Rob Fink: Posting the call today, I already sealed ReposiTrak's Chairman and CEO and John Merrill, Positrak's CFO. Before we begin, I would like to remind everyone that this call could contain forward-looking statements about ReposiTrak within the meeting of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts. That's forward-looking statements are based on current beliefs and expectations. ReposiTrak's remarks are subject to risks that uncertainties, which actual results may differ materially. Such risks are fully discussed in the company's filings with the SEC. The information sets forth herein should be considered in light of such risks.

Speaker Change: Welcome to the next episode of The Old Repositracks Chairman and CEO, John Merrill, the tracks the F.O.

Speaker Change: Before we begin, I would like to remind everyone that this call could contain forward-looking statements about repository within the meeting of the private securities litigation or format of 1995.

Speaker Change: Board-looking statements are statements that are not historical facts, that's forward-looking statements are based on current beliefs and expectations.

Speaker Change: Propondent Tracks from Marks are subject to risks that uncertainties which actual results may differ materially.

Speaker Change: That risks are fully discussed in the company's filings with the SEC, the information sets forth herein should be considered in light of such risks.

Rob Fink: Positrak 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'll be discussed on today's call. Investors can visit the Investor Relations section of the company's website at repository.com to access this press release.

Speaker Change: on the track is not a ceremony obligation to update information contained in this conference call.

Speaker Change: Shortly after the market closed today, the company issued press release over viewing the financial results that will be discussed on today's call. Investors can visit the investor relations that, again, of the company's website at thepodotrack.com to access this press release.

John Merrill: Well, that said, I'd now like to turn the call over to John.

John Merrill: Don, the call is yours. Thanks, Rob, and good afternoon, everyone. This was again a milestone year for ReposiTrak. As anticipated, we increased recurring revenue, delivered solid margins, grew net income, and our EPS even faster. We added more cash to our balance sheet; now the highest in the company's history. At the same time, we returned over 5.6 million dollars in capital to shareholders through a growing common stock cash dividend, buy back from retirement of common shares, and the redemption of preferred shares. At the same time, we invested heavily in sales, marketing, cybersecurity, and bolster our development platform and expanded our implementation resources to further accelerate our traceability solution.

Speaker Change: Well, that said, I'd now like to turn the call over to John, John the call is yours.

John Merrill: Thanks for all and good afternoon everyone. This was a Gana Milestone Year for Repositract. As anticipated, we increased recurring revenue, delivered solid margins, grew net income, and our EPS even faster.

Speaker Change: We had a more cash or balance sheet now the highest in the company's history. At the same time, returned over $5.6 million in capital to shareholders through a growing common stock cash dividend by back from a time of common shares and the redemption of preferred shares.

Speaker Change: At the same time we invested heavily in sales, marketing, cybersecurity and bolster our development platform and expanded our implementation resources to further accelerate our traceability solution.

John Merrill: We have entered fiscal 2025 with significant tailwinds and an enviable competitive position. I believe we are and will continue to be the leader in traceability, doing it, not just talking about it. I believe traceability over the next three years will double our annual recurring revenue run rates at margins of 80 plus percent, as we have historically delivered, yielding higher earnings per share and more operating cash flow, making us even more profitable than ever before. We eliminated 1.4 million dollars of high-touch low opportunity revenue, which served as a drag on our actual competitive growth for the last 18 months.

Speaker Change: We have entered fiscal 2025 with significant tailwinds and enviable competitive position. I believe we are and will continue to be the leader and traceability, doing it not just talking about it.

Speaker Change: I believe traceability over the next three years will double our annual recurring revenue run rates at margins of 80% as we have historically delivered, you'll be higher earnings per share and more operating cash flow, making that even more profitable than ever before.

Speaker Change: We eliminated $1.4 million of high-touch low opportunity revenue which served as a drag on our actual compared growth for the last 18 months.

John Merrill: The decision may not have appeared logical or popular, but necessary, and we are moving to a period of better year-to-year comparisons just as the traceability revenue continues to accelerate. In fiscal 2024, revenue derived from our traceability solution represented 6% of total revenue or $1.2 million. I believe the decision to free up resources was proper; calling the herd will permit us to capitalize on and continue to accelerate not just on the traceability opportunity but our entire suite of solutions, generating higher levels of ARR, profitability, and EPS as we scale.

Speaker Change: The decision may not have appeared logical or popular, but necessary, and we are moving to a period of better year over year comparisons, just as the traceability revenue continues to accelerate.

Speaker Change: In fiscal 2024, revenue derives from our traceability solution, represented 6% of total revenue, or $1.2 million.

Speaker Change: I believe the decision to free up resources was proper, calling the herd will permit us to capitalize on and continue to accelerate, not just on the traceability opportunity, but our entire suite of solutions, generating higher levels of ARR, profitability and EPS as we scale.

John Merrill: I believe the numbers speak for themselves, so let's get right to it. Fourth quarter fiscal 2024 results are as follows. Total revenue was up 8% for the June quarter, $5.2 million versus $4.8 million. Recurring revenue was essentially 100% of total revenue. Operating expenses increased 6%, $3.9 million versus $3.6 million. Gatnet income increased 15%, $1.6 million versus $1.4 million. Gatnet income to common shareholders increased 18% from $1.2 million to $1.5 million in fiscal 2024. Earnings per share was 8 cents per share compared to 7 cents per share last year. And we were deemed 81,000 shares a preferred stock at the $10.70 retention price for just under $870,000.

Speaker Change: I believe the number speaks for themselves, so let's get right to it.

Speaker Change: Fourth Quarter Fiscal 2024 Results Our Follows.

Speaker Change: Total revenue is up 8% for the June quarter, 5.2 million dollars versus 4.8 million.

Speaker Change: Recurring revenue was essentially a 100% of total revenue. Operating expenses increase 6% 3.9 million dollars versus 3.6 million dollars.

Speaker Change: Gattenit income increased 15% $1.6 million versus $1.4 million. Gattenit income to common shareholders increased 18% from $1.2 million to $1.5 million in fiscal 2024.

Speaker Change: earnings per share was 8 cents per share compared to 7 cents per share last year. And we were deemed 81,000 shares a preferred stock at a $10.70 redemption price for just under $870,000.

John Merrill: Turning to the full fiscal year 2024 numbers. During fiscal 2024, total revenue was up 7%, and recurring revenue was 99% of total revenue. Operating expenses increased 10%, reflecting investments in the repository traceability network or RTN, cybersecurity, and investment sales and marketing, with more participation in trade shows and focus on other awareness campaigns. Gatnet income increased 7%, $5.9 million versus $5.6 million. Gatnet income to common shareholders increased 8%, $5.4 million versus $5 million. Earnings per share was 30 cents basic and 29 cents diluted. This is compared to 27 cents per share last year, both basic and diluted.

Speaker Change: Turning to the full fiscal year 2024 numbers.

Speaker Change: During fiscal 2024, total revenue was up 7% and recurring revenue was 99% of total revenue.

Speaker Change: Operating expenses increased 10% reflecting investments in the repository traceability network or RTN, cybersecurity and investment sales and marketing with more participation in trade shows and focus on other awareness campaigns.

Speaker Change: Gapment income increase 7% 5.9 million dollars versus 5.6 million dollars. Gapment income to common shareholders increase 8% 5.4 million dollars worth of 5 million dollars.

Speaker Change: earnings for share was 30 cent basic and 29 cents diluted. This is compared to 27 cents per share last year, both basic and diluted.

John Merrill: During the fiscal year, we repurchased 177,000 common shares for a total of $1.5 million. We were deemed 220,000 preferred shares for the stated redemption price of $10.70 for a total of roughly $2.4 million. We continue to reiterate our goal to redeem all the preferred shares in the remaining two years. Again, we hold no treasury stock; stock is repurchased or redeemed and subsequently canceled. It doesn't matter if it's common or preferred. We fully paid off our line of credit and have no bank debt. We increased the quarterly common stock dividend and paid $1.7 million in cash dividends to common shareholders in fiscal 2024.

Speaker Change: During the fiscal year, we repurchased 177,000 common shares where a total of $1.5 million.

Speaker Change: We were deemed 220,000 preferred shares for the stated redemption price of $10 and 70 cents for a total of roughly $2.4 million.

Speaker Change: We continue to reiterate our goal and redeem all the referred shares in the remaining two years.

Speaker Change: Again, we hold no treasury stock, stock is repurchased or redeemed and subsequently canceled. It doesn't matter if it's common or preferred.

Speaker Change: We fully paid off our line of credit to have no bank debt. We increased the quarterly common stock dividend and paid $1.7 million in cash dividends to common shareholders in fiscal 2024. And we have over 25 million cash in the bank.

John Merrill: And we have over 25 million cash in the bank. Again, our financial performance of fiscal 2024 reflects a 6% revenue contribution from traceability, net of ongoing investments to bolster our position and net of sunsetting non-core revenue streams. We expect the contribution from traceability will increase sequentially, quarter by quarter, in fiscal 2025 and continue to accelerate as we move closer to the FDA deadline. It remains difficult to forecast the trajectory of enrollment, as the FDA mandate requires a complex multi-step process for enrollment suppliers. There's a discovery period to establish FDA requirements of the supplier. We then have to explain the requirements that help suppliers identify what and where their acquired data lives.

Speaker Change: Again, our financial performance of Cisco 2024 reflects a 6% revenue contribution from price ability, net of ongoing investments to bolster our position and net of sun setting non-poor revenue streams.

Speaker Change: We expect the contribution from traceability will increase sequentially, quarter by quarter in fiscal 2025, and continue to accelerate as we move closer to the FDA deadline. It remains difficult to forecast the trajectory of enrollment as the FDA mandate requires a complex, multi-step process for enrollment suppliers.

Speaker Change: There's a discovery period to establish FDA requirements of the supplier. We then have to explain the requirements that help suppliers identify what and where their wire data lives.

John Merrill: Data is collected in files and various emails written manually or live in one of the suppliers' several systems and need to be extracted routinely and accurately. It is not a one size fits all. It's complex. However, that's where we excel.

Speaker Change: Beta is collected in files in various emails written manually or live in one of the supplier's several systems and need to be extracted routinely and accurately. It is not a one-size-fits-all, it's complex. However, that's where we excel. Randall had more color in his commentary.

John Merrill: Randy will add more color in his commentary. We continue to educate and automate everywhere we can to facilitate the enrollment process, making it faster and more efficient. That is the part of the increased expenses you were seeing. It's a learning process. I believe once suppliers and their parent hubs or retailers are enrolled and implemented, the financial requirements to maintain the network are more in line with our compliance and supply chain offering. I know we spent a lot of time talking about growth and traceability. Be clear, we are simultaneously laser-focused on growth of the entire suite of solutions we provide.

Speaker Change: We continue to educate and automate everywhere we can to facilitate the enrollment process making it faster and more efficient. That is a part of the increase expenses you are seeing.

Speaker Change: It's a learning process. I believe once suppliers and their parent hubs or retailers are enrolled in implemented, the financial requirements to maintain the network are more in line with our compliance and supply chain offering.

Speaker Change: I know we spent a lot of time talking about growth and traceability. Be clear, we are simultaneously laser-focused on growth of the entire suite of solutions we provide.

John Merrill: Compliance management, supply chain, discovery, continued to deliver solid growth figures despite the elimination of high-touch low-opportunity revenue. The same customers with a traceability problem also have a compliance and supply chain problem. The cross-sell opportunity is not lost on us.

Speaker Change: Compliance Management, Supply Chain, Discovery, Continue to deliver solid growth figures despite the elimination of high-touch low opportunity revenue.

Speaker Change: The same customers with a presubility problem also have a complaint and supply chain problem. The cross cell opportunity is not lost on us.

John Merrill: In summary, our strategy remains very simple. Take care of the customer, grow recurring revenue, balancing costs with opportunity, traceability, supply chain, and compliance offerings. Manage costs with long term opportunity, increase net income and EPS, continue to buy back of common and preferred stock, increase the common dividend, and drive more cash.

Speaker Change: In summary, our strategy remains very simple, take care of the customer, grow recurring revenue, balance and cost with opportunity, traceability, supply chain and compliance offerings.

Speaker Change: Managed costs with long-term opportunity, increased net income in EPS, continued a buyback of common and preferred stock, increased the common dividend, and drive more cash.

John Merrill: Turning net to cash flow and cash balances. Total cash at June 30, 2024, was $25.2 million compared to $24 million at the end of fiscal year 2023. This was a record cash year for us, even after paying off all bank debt and returning over $5.6 million in capital to shareholders on common stock buybacks, preferred stock redemption, and cash dividends. For the fiscal year, we generated cash from operations of nearly $7 million. The company has $8 million remaining on the $21 million total common stock buyback off authorization. As I said earlier, we have repurchased 220,000 preferred shares at the stated redemption price of $10.70 per share.

Speaker Change: Turning now to cash flow and cash balances.

Speaker Change: Total cash at June 30, 2024 was $24.2 million compared to $24 million at the end of fiscal year 2023.

Speaker Change: This was a record cash year for us, even after paying off all bank debt and returning over $5.6 million in capital to shareholders on common stock buybacks, preferred stock redemption and cash dividends.

Speaker Change: For the fiscal year, we generated cash from operations of nearly $7 million. The company has $8 million remaining on the $21 million total common stock buyback off for authorization.

Speaker Change: At a set earlier we have repurchased 220,000 preferred shares of the stated redemption price of $10 in 70 cents per share. The remaining amount of the preferred stock redemption is about $6.2 million and we anticipate redeeming all of the preferred stock issued an outstanding over the next two years.

John Merrill: The remaining amount of the preferred stock redemption is about $6.2 million, and we anticipate redeeming all of the preferred stock issued and outstanding over the next two years. As we have said before, we will take at least half the annual cash generated from operations and return it to shareholders in the form of a dividend, buy back additional shares of common and preferred stock, or increase in the dividend, whichever lever makes the most sense at that time. The other half goes in the bank and will be strategically used to fund initiatives, M&A, new products, or otherwise.

Speaker Change: As we have said before, we will take at least half the annual cast generated from operations and return it to shareholders in the form of a dividend by not additional shares of common and preferred stock or increase in 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, M&A, new products or otherwise.

John Merrill: The board continues 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: The Board continues to evaluate our capital allocation strategy and may adjust the different capital levers, whichever lever is more favorable to shareholders at that time.

John Merrill: As you may have seen in our earnings release today, the board approved yet again another 10% increase in the quarterly common stock cash dividend, starting with shareholders of record on December 31, 2024.

Speaker Change: As you may have seen in our earnings release today, the board approved yet again, another 10% increase in the quarterly commons.cached dividend starting with shareholders of record on December 31, 2024.

Randy: So all I have today, thanks everyone for your time. At this point, I'll pass the call over to Randy. Randy.

Speaker Change: So all I have today, thanks everyone for your time at this Planet Opass, a call over to Randy. Randy?

Randy: Thanks, John. Fiscal 2024 was another year of really important evolution for ReposiTrak. Here's just a partial list of what we got done.

Speaker Change: Thanks, John, fiscal 2024 was another year of really important evolution for repositract. Here's just a partial list of what we got done.

Randy: We rebranded our business to align our corporate identity with our industry-leading platform. We uplisted to the New York Stock Exchange. We increased our quarterly cash dividend. We purchased common shares and redeemed preferred shares. We returned more than 5.6 million to shareholders during the 2024 fiscal year through common stock purchases, redemption of preferred, and paying out cash dividends. At the same time, we further strengthened our already fortress balance sheet. We increased recurring revenues, grew net income and EPS even faster.

Speaker Change: We rebranded our business to align our corporate identity with our industry leading platform. We uplisted to the New York Stock Exchange, we increased our quarterly cash dividend, we purchased common chairs and redeemed preferred chairs.

Speaker Change: We've returned more than 5.6 million to shareholders during the 2024 fiscal year through common stock purchases, redemption of preferred and paying out cash dividends. The same time, we've heard the strengthens are already Fortress Ballantry. We increased recurring revenues, grew net income and EPS even faster.

Randy: We established the ReposiTrak Traceability Network, or RTN as we call it, as the obvious choice to address the opportunity related to the FDA's Food Safety Modernization Act Rule 204. At the same time, we soon said that certain high-touch low opportunity revenue lines to free up resources to better address our traceability solution long-term, while still delivering 7% revenue growth. We secured industry endorsement, signed major retailers, and wholesalers added thousands of suppliers to our queue and established ReposiTrak as the thought leader in the space. It's an amazing beginning to the traceability journey that we're on. I'm extremely proud of the team for what we've accomplished.

Speaker Change: We established the repository of traceability network or RTN as we call it.

Speaker Change: As the obvious choice to address the opportunity related to the FDA's Food Safety Modernization Act rule 204.

Speaker Change: At the same time, we sunseted certain high-touch low-opportunity revenue lines to free up resources to better address our traceability solution long-term while still delivering 7% revenue growth.

Speaker Change: We secured industry endorsement sign major retailers and wholesalers added thousands of suppliers to our queue and establish proposal track as the thought leader in the space.

Speaker Change: It's an amazing beginning to the traceability journey that we're on and we extremely proud of the team for what we've accomplished. Traceability continues to exceed our expectations in almost every way.

Randy: Traceability continues to exceed our expectations in almost every way. The size of the market is larger than we initially expected. The pace of adoption is exceeding our expectations, and beyond traceability for grocery, there's many, many ancillary opportunities.

Speaker Change: The size of the market is larger than we initially expected.

Speaker Change: The pace of adoption is exceeding our expectations, and beyond traceability for grocery, there's many, many, and silvery opportunities in food service convenience stores, other verticals, and some amazing add-on products that will be rolling out in 2025, more about that later, obviously.

Randy: In food service, convenience stores, other verticals, and some amazing add-on products that will be rolling out in 2025. More about that later, obviously.

Randy: So, where are we? We currently have 4,000 companies and roughly 5,000 facilities that are being actively enrolled by our retail and wholesale customers. Representing about 10 million of annual recurring revenue run rate for us in the next 12 to 18 months. The current FDA deadline is January 2026. Importantly, traceability is actually becoming less and less a regulatory push and more and more a market competitive pull. The recent spate of food safety issues that you've heard about is reinforcing and frankly accelerating the demand for what we do. In fact, some large retailers and wholesalers are requiring all food suppliers, not just those on the FDA list, to do traceability.

Speaker Change: So, where are we? We currently have 4,000 companies and roughly 5,000 facilities.

Speaker Change: that are being actively enrolled by our retail and wholesale customers. Representing about 10 million of annual recurring revenue run rate for us in the next 12-day teen months.

Speaker Change: The current FDA deadline is January 20, 26, importantly, traceability is actually becoming less and less or regulatory push and more and more market competitive pull.

Speaker Change: The recent spate of food safety issues that you've heard about is reinforcing and frankly accelerating the demand for what we do.

Speaker Change: In fact, some large retailers and wholesalers are requiring all food suppliers, not just those on the FDA list, to do traceability.

Randy: This obviously increases the total size of the market, but be clear, it's multiples of what we currently see. As we've said, we'd welcome a delay in the January 2026 deadline, which would provide the industry additional time to meet the requirements. But to date, the FDA has not adjusted the timeline. Nevertheless, many retailers appear more eager to establish traceability even faster than the FDA mandates it. For us, that means more, and it means faster. We adjusted quickly with compliance, and we'll do it again for traceability. We're fully prepared. January 2026 is the current FDA drop-dead date.

Speaker Change: This obviously increases the total size of the market, but be clear, it's multiples of what we currently see.

Speaker Change: As we've said, we'd welcome a delay in the January 20, 26 deadline, would provide the industry additional time to meet the requirements, but today, EFDA is not adjusted the timeline.

Speaker Change: Never the last many retailers appear more eager to establish traceability even faster than the FDA mandates it. For us that means more and it means faster.

Speaker Change: We adjusted quickly with compliance and we'll do it again for traceability. We're fully prepared. January 2026 is the current FDA dropped dead date. Knowing this, retailers have dictated their own deadlines together ahead of the line of procrastinators.

Randy: Knowing this, retailers have dictated their own deadlines to get ahead of the line of procrastinators. Keep in mind that a retailer that doesn't require or meet the traceability requirements from its Rule 204 suppliers owns the regulatory, legal, and financial risk associated with the product. Retailers are taking the FDA really seriously for the obvious reason. Given all the news stories about food illnesses, we're seeing lawyers that are actually advising customers to demand suppliers that are covered by Rule 204. Either comply or stop accepting product from them. Obviously, there's an unrelenting pressure to get suppliers doing their part, or the retail is going to fire them.

Speaker Change: Keep in mind that a retailer that doesn't require or meet the traceability requirements from its rule 204 suppliers owns the regulatory legal and financial risk associated with the product.

Speaker Change: Retailers are taking the FDA really seriously for the obvious reason.

Speaker Change: Given all the new stories about food illnesses, we're seeing lawyers that are actually advising customers to demand the suppliers that are covered by rule 204, either comply or stop accepting product from them.

Speaker Change: Obviously, there's an unrelenting pressure to get suppliers doing their part, or the retail is going to fire them.

Randy: As John pointed out, traceability contributes about 6% of our total revenue, about 1.2 million in fiscal 2024. This only reflects the portion of the suppliers that enrolled over the last 12 to 14 months, ProRata, who've been enrolled, provided the necessary data and are fully implemented and now being built. As John stated, we're now accelerating rapidly and sequentially quarter to quarter, driven by the enrollment lines created by our hubs. For those of you who ask when the revenue ramp will begin, the answer is now. Our job is to manage it, smooth it, and make sure that our customers are thrilled with how we handle them.

Speaker Change: is John pointed out traceability contributed about 6% of our total revenue about 1.2 million in fiscal 2024.

Speaker Change: This only reflects the portion of the suppliers that enrolled over the last 12-14 months, Pro-Rata, who've been enrolled provided the necessary data and are fully implemented and now being built.

Speaker Change: is John stated we're now accelerating rapidly and sequentially quarter to quarter, driven by the enrollment lines created by our hubs.

Speaker Change: For those of you who ask when the revenue ramp will begin, the answer is now.

Speaker Change: Our job is to manage it, smooth it, and make sure that our customers are thrilled with how we handle them.

Randy: Let me explain the traceability enrollment process a little bit. As John alluded to, onboarding traceability suppliers is a complex multi-step process. First, there's a discovery phase. We have to identify a hub supplier. It is broken into two categories. One, those directly are indirectly impacted by the law, and two, those suppliers that may not be governed by the FDA's mandate. Next, over a period of time, the actual traceability enrollment rolls out. We work with a hub and reach out to each and every selected supplier, explain the requirements, and help them identify what, where, et cetera, the required data that they have to provide lives.

Speaker Change: Let me explain the traceability and role that process a little bit.

Speaker Change: is John alluded to on boarding traceability suppliers as the complex multi-step process.

Speaker Change: First, there's a discovery phase. We have to identify a hub suppliers broken into two categories. One, those directly are indirectly impacted by the law and two, those suppliers that may not be governed by the FDA's mandate.

Speaker Change: Next, over a period of time, the actual trace of the laden-rollment rolls out.

Speaker Change: We work for the hub and reach out to each and every selected supplier, explain the requirements, and help them identify what, where, et cetera, the required data that they have to provide lives. Many of the suppliers don't have the required information, or at least not all of it.

Randy: Many of the suppliers don't have the required information, or at least not all of it. There's no simple standardization of data collection. Some data is collected in files and emails written out, et cetera. The files may be more than one of the supplier's systems and need to be extracted on a routine and accurate basis. It is complex, particularly if you consider the fact that 70% of the suppliers don't even have an IT department or technology staff to assist. We navigate that. We assist the supplier to understand what data is required. We collect it and set it up in our platform.

Speaker Change: There's no simple standardization of data collection. Some data is collected in files and emails written out, etc. The files may be a more than one of the supplier's systems and need to be extracted on a routine and accurate basis.

Speaker Change: It is complex, particularly if you consider the fact that 70% of the suppliers don't even have an IT department or technology staff to assist. We navigate that.

Speaker Change: We assist the supplier to understand what data is required, we collect it and set it up in our platform.

Randy: We continue to advance our platform, which has resulted in increasing the speed at which we can be onboarding suppliers. Once connected, we can begin billing. The initial timeline was a year to 18 months, if you remember, from identifying the vendors to monthly revenue. As of today, we've now cut that in half. The pressure of market forces, automation, the sheer number of hubs, and the FDA adoption period is likely to reduce that time even more. The 4,000 suppliers that were required to enroll by the contracted hubs represents 10 million in annualized recurring revenue for us. Again, we can't project the trajectory of the full implementation.

Speaker Change: We continue to advance our platform, which is resulted in increasing the speed at which we can be onboarding suppliers.

Speaker Change: Once connected, we can begin building. The initial timeline was a year to 18 months of human remember from identifying the vendors to monthly revenue. As of today, we've now cut that in half.

Speaker Change: The pressure of market forces, automation, the sheer number of hubs, the FDA adoption period is likely to reduce that time even more.

Speaker Change: The 4,000 suppliers that were required to enroll by the contracted hubs represents 10 million and annualized recurring revenue for us. Again, we can't project the trajectory of the full implementation, however we believe quarter by quarter, you will see significant increases in our ARR.

Randy: However, we believe quarter by quarter, you will see significant increases in our ARR.

Randy: The scale of the current market penetration, by the way, is very attractive to additional retailers, wholesalers, and others, hubs, as we call them. Why? Well, because we have many, in some cases, most of their suppliers already in the ReposiTrak Tracability Network, that makes the job of getting them up and running in Tracability even easier. Our pipeline of additional retailers and wholesalers is very, very deep and will only add to the thousands of current suppliers being enrolled and onboarded.

Speaker Change: The scale of the current market penetration, by the way, is very attractive to additional retailers, wholesalers, and others, hubs as we call them. Why? Well...

Speaker Change: Because we have many, in some cases, most of their suppliers already in their podstrike traceability network. That makes the job of getting them up and running in traceability even easier.

Speaker Change: Our pipeline of additional retailers and wholesalers is very, very deep and will only add to the thousands of current suppliers being enrolled and onboarded.

Randy: I'm not a tout, but we have an enviable competitive position. That's why we say everyone else is talking about Tracability, and we're doing it. Keep in mind that suppliers and others are likely to have multiple Tracability type systems, so it's not really a zero-sum game. While Tracability is our primary focus at the moment, our compliance and supply chain businesses are also growing; they augment Tracability. While we are well-positioned to provide Tracability solutions, our customers still do have both compliance and supply chain problems that our suite of services can assist with.

Speaker Change: I'm not a tout, but we have an enviable, competitive position. That's why we say everyone else is talking about traceability and we're doing it. Keep in mind that suppliers and others are likely to have multiple traceability type systems, so it's not really a zero-sum game.

Speaker Change: While traceability is our primary focus at the moment, our compliance and supply chain businesses are also growing, the augment traceability.

Speaker Change: While we are well positioned to provide traceability solutions, our customers still do have both compliance and supply chain problems that our suite of services can assist with. Let me summarize.

Randy: Let me summarize. We will continue to take great care of our customers. The current enrollment will have the inevitable effect of increasing our current recurring revenue growth rate. We prefer a moderate growth rate, prioritizing execution and maximizing profitability over speed that could jeopardize our ability to deliver for our customers. We won't allow that. We will continue to automate it every opportunity. We can still be better and faster, so long as we maintain flawless execution. We'll continue to deploy our capital allocation strategy, continue to buy back stock, common and prefer paying a dividend, increasing our cash balances, to give our customers even more confidence.

Speaker Change: We will continue to take great care of our customers.

Speaker Change: The current enrollment will have the inevitable effect of increasing our current recurring revenue growth rate. We prefer a moderate growth rate, prioritizing execution and maximizing profitability over speed that could jeopardize our ability to learn for our customers. We want to allow that.

Speaker Change: We will continue to automate it every opportunity. We can still be better and faster, so long as we maintain flawless execution.

Speaker Change: We'll continue to deploy our capital allocation strategy, continue to buy back stock, common and prefer paying a dividend increasing our cash balances to give our customers even more confidence.

Randy: Finally, as you may have seen in today's earnings press release, just as we did with the 10% increase in the common dividend in November of 2023, I'm proud to announce that the board has again voted to increase the common stock dividend another 10% starting with shareholders of record December 31, 2024. Hopefully, from all of this, you can hear how optimistic and confident both John and I are. This is going to be an exciting next few years.

Speaker Change: Finally, as you may have seen in today's earnings press release, just as we did with the 10% increase in the common dividend in November of 2023.

Speaker Change: and proud to announce that the board has again voted to increase the common stock dividend another 10% starting with shareholders of record December 31, 2024.

Speaker Change: Hopefully, from all of this, you can hear optimistic and confident both John and I are. This is going to be an exciting, X-HU years.

Operator: So, with that, I'd like to now open the call for questions, operator.

Speaker Change: So with that, I'd like to now open the call for questions. Operator?

Operator: Thank you.

Operator: Well, now we can do a question and answer session. If you'd like to ask a question, please press star, warden, on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your hands up before pressing the star keys. One moment, please, while we pull for questions.

Speaker Change: Thank you. Well, now we can talk to you a question and answer session. If you'd like to have a question, please press star, Walden, on your telephone keypad. The confirmation term will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue.

Speaker Change: for participants using speaker equipment and maybe NASA started to pick up your answer before pressing the star keys.

Speaker Change: One moment please while we pull for questions.

Operator: Thank you.

Thomas Forte: Our first question is from Thomas Forteye with Maxim Brute. Please proceed with your question. Great. Thanks. So first off, Rene and John, congrats on a fantastic quarter and year. We'll pause you in advance if anyone else is in the queue. I have five questions. Although one at a time.

Speaker Change: it

Speaker Change: Thank you. Our first question is from Thomas Forty with Maxim Groot. Please receive your question.

Speaker Change: Great, thanks so first off, Randy and John congrats on a fantastic quarter and year. The college is in advance if anyone else is in the queue. I have six questions, I'll go one at a time.

John Merrill: The first one is, have you finished adjusting your customer portfolio to remove high tax, low margin ones, or is it a permanent effort?

Speaker Change: The first one is, have you finished adjusting your customer portfolio to remove high-tech slow margin ones, or is it a permanent effort?

John Merrill: Well, the answer to that is from where we are today, yes; however, if in fact there's more requirement on our part because of an influx of traceability, we have another layer of the onion that we can deal with. But at this point, we think we're where we want to be, but that's not to say that it's a hundred percent certain that's where we'll stay.

Speaker Change: Well.

Speaker Change: The answer to that is from where we are today, yes, however.

Speaker Change: If, in fact, there's more requirement on our part because of an influx of traceability, we have another layer of the onion that we can deal with. But at this point, we think we're...

Speaker Change: where we want to be, but that's not to say that it's 100% certain that that's where we'll stay.

John Merrill: Okay, and then you tease this, so I don't want to discuss the tease part. We'll save that for future quarters, but can you give your current thoughts on adjacent regulated markets, restaurants, healthcare, so not to think you tease that on the call, but your efforts in restaurants and then your willingness to expand into healthcare. Well, you know what we do is obvious; we take a look at both the market size, opportunity, and the profitability that we can get from it. So, to a certain extent, follow-on products to the same customers are more profitable for us.

Speaker Change: Okay, and then you tease this.

Speaker Change: So I don't want to discuss these parts, we'll say that for future quarters.

Speaker Change: But can you give your current thoughts on adjacent regulated markets, restaurants, healthcare? So not to think you've teased on on the call, but your efforts in restaurants and then you're willing this to expand in healthcare.

Speaker Change: Well, you know what we do is obvious. We take a look at both the market, size, opportunity and the profitability that we can get from it.

Speaker Change: So to a certain extent follow on products to the same customers are more profitable for us.

John Merrill: So there are some new follow-on products that I tease, it will be available after the first of the year that are, for more, we stand today extraordinarily exciting. And so the question is, we'll continue to push into other verticals; we are doing that, and at the same time we are bringing forward these products that will sit on top of our traceability, and we think make us extremely attractive to prospective customers. So the answer, the not vague answer to your question, is we're going to try and do both.

Speaker Change: So there are some new follow-on products that ITs will be available after the first of the year that are...

Speaker Change: For more, we stand today extraordinarily exciting.

Speaker Change: and so the question is, [inaudible]

Speaker Change: will continue to push into other verticals we are doing that.

Speaker Change: And at the same time we are bringing forward these products that will sit on top of our traceability and we think make us extremely attractive to prospective customers.

Speaker Change: So the answer, the not vague answer to your question is we're going to try and do both.

John Merrill: Okay, all right, and then the next question is, can you give updates on your international efforts and the opportunity? Well, I think, unfortunately, we are so focused on the execution part of what we're doing today with thousands of suppliers that have to be onboarded. It's too much for us to imagine doing business outside the U.S. It is, however, extremely likely that whatever the U.S.

Speaker Change: Okay.

Speaker Change: All right, then next question is, can you give updates on your international efforts and the opportunity?

Speaker Change: Well, I think, unfortunately, we are so focused on the execution part of what we're doing today with thousands of suppliers that have to be onboarded.

Speaker Change: It's too much for us to imagine doing business outside the U.S.

John Merrill: platform that becomes most dominant over the next few years is likely to have the greatest opportunity outside the U.S., and we are sure that thus, our approach, however, is much more likely to be in the form of ventures outside the U.S., rather than our execution with our own personnel.

Speaker Change: It is however extremely likely that whatever the U.S. platform

Speaker Change: that becomes most dominant over the next few years is likely to have the greatest opportunity outside the U.S.

Speaker Change: and we are sure that that's us. Our approach, however, is much more likely to be in the form of ventures outside the US rather than our execution with our own personnel.

Thomas Forte: Okay, and then I wanted to ask on the capo allocation, the dividend increase for the regular quarterly dividends, fantastic. All the other things were fantastic.

Speaker Change: Okay, and then I wanted to ask on the capital allocation.

Speaker Change: The dividend increase for the regular quarterly dividends, all the other things were fantastic.

John Merrill: Would you ever consider a one-time dividend? John, I don't think it's off the table, but I think I, just as an investor, would want to look at what line of sight quarter to quarter. I would much rather have the board approve a dividend quarterly, so to where people can count on that as opposed to some dividend in the future.

Speaker Change: would you ever consider a one-time dividend?

Speaker Change: John, I don't think it's off the table but I think I...

Speaker Change: Just as an investor, I would want to look at what line of sight-quartered quarter I would much rather have the board approve a dividend quarterly, so to where people can count on that as opposed to some dividend in the future is a possible, of course, it's possible, but I'd rather increase the quarterly dividend that gives the line of sight to investors.

John Merrill: Is it possible? Of course, it's possible, but I'd rather increase the quarterly dividend that gives a line of sight to this.

John Merrill: So if you had the pace of adoption, far exceeded expectations, and given your high level of contribution margin on incremental dollar, if you just had a massive cash influx, what would you do with it hypothetically? Exactly what we're saying that we're doing. And we would take half, at least half the cash from operations and return that in the form of redeeming the preferred, buying back the shares, and increasing the dividend. That could also mean a special dividend. But to your point, you would have to look at that number, cash from operations, and assume that we would at least take half of that.

Speaker Change: So if you had

Speaker Change: It's a pace of adoption, far exceeded expectations, and given your high level of contribution margin on an incremental dollar, if you just had a massive cash influx.

Speaker Change: What would you do if it hypothetically?

Speaker Change: Exactly what we're saying that we're doing. We would take half.

Speaker Change: at least half the cash from operations.

Speaker Change: and return that in the form of redeeming the preferred buying back the shares and increasing the dividend. That could also mean a special dividend, but to your point, you would have to look at that number, cash, operations and assume that we would at least take out of that. To your point, if we had a big influx, rapid sign up and influx of cash, we would consider that as well.

John Merrill: To your point, if we had a big influx, rapid sign up, and influx of cash, we would consider that as well. It's exactly what we're saying; doesn't change anything.

Speaker Change: It's exactly what we're saying.

Thomas Forte: I won't ask you a third question.

Speaker Change: Dr. James, Dr. Mike.

Thomas Forte: All right.

John Merrill: So, Randy, what are you doing today with artificial intelligence and how might your artificial intelligence related efforts improve your future top and bottom line? Well, most of the work that we do in AI is candidly directed toward our own people, how to allow them to make better decisions, do less what we call administrative, moving paper and stuff around, and better able to focus on their customers. We have a couple of other ideas that we're pursuing aggressively that are AI-based. As you know, we've been doing the AI stuff for many years. We think we have another couple of opportunities that could expand the spans of control of our people.

Speaker Change: and I want to ask you a third question, all right, so Randi, what are you doing today with Artificial Intelligence and how much your Artificial Intelligence related efforts improves your future top and bottom line?

Speaker Change: Well, most of the work that we do in AI is candidly directed toward our own people, how to allow them to make better decisions, do less what we call administrativeia, moving paper and stuff around, and better able to focus on their customers.

Speaker Change: We have a couple of other ideas that we're pursuing aggressively that are AI-based.

Speaker Change: As you know, we've been doing AI stuff for many years.

Speaker Change: We think we have another couple of opportunities that could expand the spans of control of our people.

John Merrill: Again, we, I'd say perhaps another double; in other words, we think we can double the size of the company but not have very additional people executing the workload that comes from a company double. So, it's moving along, and we think our customers benefit from having higher level people always interacting with them.

Speaker Change: Again, we, I'd say, perhaps another double. In other words, we think we can double the size of the company that not have very additional people executing the workload that comes from a company double.

Speaker Change: So it's moving along and we think our customers benefit from having higher level people always interacting with them.

John Merrill: Okay, and then, I apologize, John, if you gave this number on the call, but you're usually pretty specific on how much it costs to run the business. Can you give an updated number there? I mean, it's the same thing. I've said it takes $12 million to run this place, and I would say that's smooth, meaning that we're invested in cyber security or front loading sales and marketing and getting out of the trade shows. Obviously, that's going to, that may go up or down, but I think as I put in my comments, that as we get stabilized and get to where we're on-boring fast or get better at it, I think over the course of time you'll look back at it and it will be that same type of percentage, the $12 million on the $20, and it may be, I can't see it going above $18 million on $30 or $35. That's not a forecast; I just don't see what incremental expenses that we would have that are beyond where we're at unless we're investing short-term in sales, marketing, cyber security efforts.

Speaker Change: Okay, and then I apologize, John, if you gave this number on the call, but you're usually pretty specific on how much it costs you on the business. Can you give up to it a number there?

Speaker Change: I mean, it's the same thing. I've said it takes $12 million to run this place and I would say that's, you know, smooth, meaning that, you know, we're invested in cyber security or front-loading sales and marketing and getting out the trade shows. Obviously that's going to, that may go up or down. But I think as I put in my, my comment.

Speaker Change: that as we get stabilized and get to where we're onboarding fast, we get better at it. I think over the course of time you'll look back at it and it will be that same type of percentage, the 12 million on the 20, and maybe I can't see it going above 18 million on 30.

Speaker Change: or 35. That's not a forecast. I just don't see what incremental expenses that we would have that are beyond where we're at and less we're investing short-term in sales, marketing, cybersecurity efforts. Is that any of your questions?

John Merrill: Does that answer your question?

Thomas Forte: All right, and then I had my original question, and I have one new one. So can you give your current thoughts on M&A? You have a very strong balance. You're executing at a very high level. I'm imagining you're getting presented opportunities often. What are your thoughts?

Speaker Change: Yes, all right, and then I had my original question that I have one new one.

Speaker Change: Can you give your current thoughts on M&A? You have a very strong balance sheet. You're executing it at a very high level. I'm imagining you're getting presented opportunities often.

John Merrill: Well, I think John and I have the same thought. We are as laser focused as we can be on the execution part of where we are. It is an enormous workload. And if we take our eye off the ball to do an acquisition or God knows what else, we run the risk that will screw up our execution. If there's anything in the history of the company where we've been flawless, it is in our execution. We are really operationally inclined. The team is magnificent and they're caring about customers, and that's why we do it. So the risk is if we go to do an acquisition, we take our eye off the ball.

Speaker Change #100: Um, more of your thoughts.

Speaker Change #101: Well, I think John and I have the same thought we are as laser focused as we can be on the execution part of where we are. It is an enormous workload.

Speaker Change #102: and if we take our eye off the ball to do an acquisition or God knows what else, we run the risk that will screw up our execution. If there's anything in the history of the company.

Speaker Change #102: We've been flawless. It is in our execution. We are really operationally inclined.

Speaker Change #102: The team is magnificent and they're caring about customers and that's why we do it.

Speaker Change #103: So the risk is if we go to do an acquisition, we take our eye off the ball. Now that's not to say a year from now, that it might not be different, but for now, staying focused on bringing in these 4,000, remember the 4,000 or where we are today, 2 days.

John Merrill: Now that's not to say a year from now that it might not be different, but for now, staying focused on bringing in these 4,000. Remember, the 4,000 are where we are today. In the next month, the odds are pretty good. There'll be another hub, and the next month, another hub, and each time a new hub comes in, anywhere from a few hundred to a thousand more suppliers enter that queue. So the 4,000 is just what we've got in our hot little hands. And I would imagine that a year from now, that number will be very significantly larger.

Speaker Change #104: In the next month, the odds are pretty good. They'll be another hub and the next month another hub and each time a new hub comes in, anywhere from a few hundred to a thousand more suppliers enter that queue.

Speaker Change #104: So, the 4,000 is just what we've gotten our hot little hands and I would imagine that a year from now that number will be very significant in the larger. It isn't worth the risk of screwing up that opportunity to do a deal.

John Merrill: It isn't worth the risk of screwing up that opportunity to do a deal.

Thomas Forte: And then I want to ask you this directly. I was hoping that we could get indirect answers from my questions, but I think this was really important. So when I hear the prepare remarks and your answers to my questions, I'm hearing that you have a lot of confidence in and meaning that there's sometimes when you're hyper focused on an initiative, what feels like it's all hands on decks that are initial initiatives, but this time it really feels like me that you're really confident and coming you made was the ability to do compliance and supply chain to augment traceability.

Speaker Change #105: I want to ask you this directly, I was hoping that we could get an indirect answer from my questions, but I think this is really important. So when I hear the prepare the marks and your answers to my questions.

Speaker Change #105: I'm hearing that you have a lot of confidence in hand.

Speaker Change #105: Meaning that there's sometimes when you're hyper focused on an initiative, what feels like.

Speaker Change #106: is all hands-on decks that are initially initiatives, but this time it really feels like to me that you're really confident, and the coming you made was the ability to do compliance and supply chain to augment traceability, so I'd like to understand what gives you that confidence.

John Merrill: So I'd like to understand what gives you that confidence. Well, the reality is, as we described it, we have customers with whom we are contracted that have now established requirements for their suppliers that number around 4,000 customers of hours that will be brought into the network. So, in other words, in our hot little hands, as I like to say, we have around 4,000 suppliers; call it 5,000 facilities that will be brought into the network over some reasonably close in period of time, 12 to 18 months. We can't screw that up. A year ago, what we were hoping for was that all of the time and effort we've put into traceability would get us to exactly where we are now.

Speaker Change #106: Well, the reality is, as we described it, we...

Speaker Change #107: We have customers with whom we are contracted.

Speaker Change #108: that have now established requirements for their suppliers that number around 4,000 customers of hours that will be brought into the network. So in other words, in our hot little hands as I like to say.

Speaker Change #109: We have around 4,000 suppliers, call it 5,000 facilities that will be brought into the network over some reasonably close-in period of time, 12 to 18 months.

Speaker Change #109: We can't screw that up.

Speaker Change #110: A year ago what we were hoping for was that all of the time in effort we've put into traceability, would get us to exactly where we are now.

John Merrill: So the difference that hopefully people are hearing is before we had a good feeling about where we were and what we were. We do. That feeling is translated into contractual obligations that will drive the revenue of the business and the pre-eminence of ReposiTrak and the traceability scene that we were hoping for.

Speaker Change #110: So the difference that hopefully people are hearing is

Speaker Change #110: Before we had a good feeling about where we were and what we do.

Speaker Change #110: That feeling is translated into contractual obligations that will drive the revenue of the business and the preeminence of repository and traceability seen that we were hoping for. So it's a different between hope and real.

John Merrill: So it's a difference between hope and real.

Thomas Forte: Okay, I have exactly my questions.

Speaker Change #111: Okay, I've exactly my question. Congrats again.

Thomas Forte: Congrats again. Thank you. Thanks, Tom. Thank you.

Speaker Change #111: Thank you.

Operator: There are no further questions at this time.

Randy: I would like to hand the floor back over to Randall Fields for any closing comments. Really, nothing to say in closing. We're head down, getting the work done. We feel very, very good about where we are. We know there's going to be issues of absorption and whatnot. It's just the way it is.

Speaker Change #111: Thank you. There are no further questions at this time. I would like to hand the floor back over to Randy Fields for any closing comments.

Speaker Change #112: Really nothing to say in closing were...

Speaker Change #113: Heads down, getting the work done, we feel very, very good about where we are. We know there's going to be issues.

Randy: But we thank all of you for the support. Thank you guys for being on the call this afternoon. We'll be talking to you soon.

Speaker Change #114: of Absorption and what not, it's just the way it is. But we thank all of you for the support. Thank you guys for being on the call this afternoon, and we'll be talking to you soon. John, thank you, Rob, thank you.

Randy: John, thank you. Rob, thank you. Thanks, everyone. Have a great day.

Operator: This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change #115: This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.