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Exhibit
99.1
-1-
C O R P O R A T E P A R T I C I P A N T S
David Mossberg, Founder and Chief Executive
Officer, Three Part Advisors, LLC
Todd Mitchell, Chief Financial
Officer
Randall Fields, Co-Founder, President, Chief
Executive Officer & Chairman
C O N F E R E N C E C A L L P A R T I C I P A N
T S
Ananda Baruah, Loop Capital
Markets LLC
Thomas Forte, D.A. Davidson
& Co.
David Ryzhik, Susquehanna
Financial Group
Andrew Gordon, Gordon
Capital
P R E S E N T A T I O N
Operator:
Good
day, and welcome to the Park City Group Second Quarter 2018
Conference Call. Today's conference is being recorded. At this
time, I would like to turn the conference over to David Mossberg,
Investor Relations. Please go ahead.
David Mossberg:
Thank
you, Melinda. Before we begin, we will be referring to today's
earnings release, which can be downloaded from the Investor
Relations page of the Company's website at parkcitygroup.com. I
also want to remind everyone that this call could contain
forward-looking statements about Park City Group within the meaning
of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are statements that are not subject to
historical facts. Such forward-looking statements are based upon
the current beliefs and expectations of Park City Group's
Management and are subject to risks and uncertainties, which could
cause actual results to differ from the forward-looking statements.
Such risks are more fully discussed in the Company's filings with
the Securities and Exchange Commission. Information set forth
herein should be considered in light of such risks. Park City Group
does not assume any obligation to update the information contained
in this conference call.
-2-
Throughout
this call, we may be referring to both GAAP and non-GAAP financial
results, including free cash flow, EBITDA, Adjusted EBITDA, net
debt, net income and earnings per share, which are non-GAAP terms.
We believe these non-GAAP terms are useful financial measures for
the Company, primarily because of the significant non-cash charges
in our operating statement. Reconciliation of non-GAAP results and
earnings release—are in the earnings release and on the
Investor Relations section of our website.
Our
speakers today will be Mr. Randy Fields, Park City Group's CEO and
Chairman, and Todd Mitchell, Park City Group's CFO. With that, I'll
turn it over to Todd.
Todd Mitchell:
Thank
you, Dave. Good afternoon, everybody. We had a record quarter on
many fronts: record revenue, record net income to common
shareholders, record supply chain results, record levels of
supplier compliance, record growth in activities across our network
of connections. Momentum is strong and we remain confident in our
outlook for the year. First, I want to talk a little about how our
business operates. We have three levers we can pull to drive
revenue growth and profitability. The first lever is scale: driving
the number of connections in our network. The second lever is
scope: increasing the activities or revenue per connection across
our network. The third lever is execution: driving higher levels of
efficiency and customer engagement.
Over
the past two years, you saw us focus on building out the scale of
our network. We added over 60 compliance hubs and literally tens of
thousands of new connections. In the first quarter of this fiscal
year, you saw us deliberately shift this focus to execution,
increasing the size and the productivity of the Success Team for
our capacity to execute, and successfully accelerating the rate in
which we got suppliers' compliance, which measures the quality of
our execution. That's the metric which our customers judge our
success by.
In this
recent second fiscal quarter, it was primarily about increasing the
scope of the activities we provide to our ReposiTrak network of
connections. We added sustainability Management to our ReposiTrak
compliance capability, and we added supply chain capabilities to
our ReposiTrak compliance hubs via Vendor Portal upsell. Last, but
not least, we had a successful commercial launch of our B2B
e-commerce platform, MarketPlace.
This
last milestone, the commercial launch of MarketPlace, was a very
meaningful event for us. Our customers are looking for a B2B
e-commerce platform that gives them greater flexibility, reduces
friction and lowers cost in their interactions with their
suppliers. Frankly, this demand is much stronger and more
broad-based than we expected. It's coming from some of the largest
players in the industry who are, frankly, expressing a sense of
urgency we've never seen before.
Given
the extraordinary interest in MarketPlace, we see an extraordinary
opportunity and, accordingly, we're putting a lot of resources,
human capital and organizational emphasis against this project.
It's also worth noting, much of this is being directed by our
customers, who are driving us to develop new capabilities or use
cases for MarketPlace.
Given
the extraordinary level of interest and the key large industry
players we're co-developing MarketPlace with, we are increasingly
confident that it's going to be a big deal.
-3-
Let's
talk a little bit about the specific numbers with regard to the
quarter. Fiscal 2Q revenue was $5.7 million, up from $4.8 million a
year ago. This was the largest revenue quarter for the Company ever
and the largest increase in revenue dollars sequentially and
year-over-year for the Company ever, as well. We saw growth in all
services. However, supply chain was a standout due to Vendor Portal
upsell, as we've said it would be last quarter. Momentum is strong,
and we remain confident in our outlook for revenue growth for the
year.
In
terms of profitability, fiscal 2Q net income to common shareholders
was a record $1.2 million. Total operating expenses were $4.35
million in fiscal 2Q, up from $3.4 million a year ago. This
year-over-year increase in operating expenses reflects higher
levels of investment in scaling our Success Team, in automation
tools via our 10x Project and, of course, in the development and
commercial launch of MarketPlace. Also, I want to highlight
thatlast year's total operating expense of $3.4 million was a bit
of apples-to-oranges comparison, as we've not yet begun investing
in any of these items. Fiscal 1Q of this year is a better
comparison. As you can see, operating expenses were basically flat
sequentially, despite a $1 million sequential increase in
revenue.
Cost of
service were $1.4 million in fiscal 2Q versus $1.2 million a year
ago. This increase year-over-year was largely due to investments in
MarketPlace. However, you'll note cost of service was flat
sequentially and fell significantly as a percentage of revenue from
fiscal 1Q to fiscal 2Q. Over the remainder of the fiscal year, we
expect cost of service to remain relatively stable as a percentage
of revenue with fiscal 2Q levels.
Sales
and marketing expenses were $1.6 million in fiscal 2Q, up from $1.2
million a year ago. Most of this increase year-over-year was due to
scaling our Success Team. We tend to add personnel expenses at the
beginning of the fiscal year to accomplish our goals for that year.
Sales and marketing expense, like cost of service, were largely
flat with fiscal 1Q, and we expect sales and marketing expense to
fall as a percentage of revenue over the remainder of the
year.
G&A
was $1.1 million in fiscal 2Q versus $938,000 a year ago. This
increase year-over-year was due to higher investments associated
with our 10x Project. We continue to invest in automation and other
enabling technology. However, as we've said before, we expect
G&A to fall as a percentage of total revenue in fiscal 2018
from fiscal 2017.
With
regards to cash flow and liquidity, we ended fiscal 2Q with nearly
$15 million in total cash. We've generated over $1.3 million in
operating cash flow fiscal year-to-date and, subsequent to the end
of fiscal 2Q, we redeemed $1 million worth of our preferred
equity.
I want
to talk a little bit about our preferred equity. With the success
of our compliance service and our recent Vendor Portal win,
MarketPlace's successful commercial launch is just one more
indication that we are becoming a more important partner to the
industry we service. As our capabilities become more apparent, our
engagement and our customers are becoming bigger and bigger. Our
largest engagements are now with some of the largest retailers and
wholesalers in the industry, and we expect this trend to continue
with MarketPlace.
This
being the case, our ability to demonstrate our financial strength
is paramount. To these large companies, this strength is measured,
first and foremost, by our cash reserves. Fortunately, we are
profitable; indeed, highly profitable; and we generate significant
amounts of cash flow. However, we also benefit from a favorable
capital structure, of which our preferred equity is a key
component, as it has provided us with flexible, below-market
financing. The Board will revisit the preferred equity balance at
fiscal 2019, and we expect to use a portion of free cash flow to
retire it over time, but not to the detriment of our future
business prospects.
-4-
Similarly,
we're continuing to explore strategic alternatives, as we announced
on our last conference call. Our initial focus here is on pursuing
partners for international opportunities. However, we do not have
any specific inclusions to announce on this matter at this time. I
will, however, conclude my remarks by reaffirming our outlook for
fiscal 2018.
We
continue to remain confident in our outlook for revenue growth.
After focusing on improving execution in fiscal 1Q, we
significantly enhanced the scope of our offering in fiscal 2Q, and
we expect this to manifest itself in stronger revenue trends in the
second half of the year than we saw in the first half of the year.
We also continue to expect higher operating margins in fiscal '18
than fiscal '17, even with our plans for accelerating MarketPlace
investment. As a result, we see fiscal 2018 generating record net
income, record operating cash flows.
I'll
now turn it over to Randy for a more qualitative
review.
Randall Fields:
Todd,
thank you. Dave, thank you. Let me just preface this by saying
these will be the longest remarks I've ever made on the conference
call, so probably a good idea to bring your futon over closer to
the phone and to order Chinese food in, because this will take a
bit.
Okay,
as Todd said, we had a record quarter on virtually every front. But
I think there was also some important milestones that we want to
chat about. First, we successfully completed our pilot of
MarketPlace with one of the largest retailers in the United States.
An important customer adopted the platform
commercially—that's obviously significant—and is now
looking to expand its use into other areas from the initial
adoption. GMDC, that we talk about a lot, which is the largest
general merchandise trade association on the planet, has given an
exclusive endorsement to MarketPlace and is laying the groundwork
for a dramatic acceleration in MarketPlace growth. That will expand
our reach into many more nonfood categories and will certainly take
MarketPlace to areas we never imagined in the beginning of this
journey.
In
addition to the exciting developments with MarketPlace, one of the
largest grocery chains in the world expanded the use of ReposiTrak
to manage its corporate sustainability effort, and that takes
ReposiTrak into an important new area of compliance. Also, as Todd
mentioned, we signed multiple supply chain Vendor Portal deals,
making it the strongest quarter ever for our supply chain business.
I know I have sometimes referred to it as our redheaded stepchild,
but the truth is, supply chain is a very important part of what we
do and will continue to be going forward.
I want
to shift gears a little bit and talk about your Company and our
strategic vision for the business and how it will unfold in the
future. We've accomplished a lot recently, and this really is more
of a strategic vision conversation that we'll have. The convergence
of our compliance and supply chain businesses that we've been
talking about for two years is rapidly becoming a reality. In
effect, we've transitioned from what we were to a Platform as a
Service business model and Company. Soon, we will be selling all of
our services under a single unified platform, under a single
unified brand, and I think that's important for you to
understand.
ReposiTrak
is now the platform. It's not just our food safety initiative, but
we're going to start talking about it that way. ReposiTrak, the
platform, encompasses all three of our applications suites:
compliance, supply chain, and now, MarketPlace. I think it's
important to note that these application suites form a
self-reinforcing ecosystem. Over time, you'll hear us talk a lot
about that. What we mean by that is that there's a logical
connection for a customer using one of our application suites to
investigate and potentially deploy another, and the use of one of
these application suites enhances the value of the others to that
customer and vice versa. This creates a model for a network-driven,
sustainable top line growth and exceptionally high
profitability.
-5-
I now
want to drill down on each of the three major areas of focus, or
application suites, as we call them: first, compliance, then supply
chain, and finally, MarketPlace. Here we go. We're barely through
this. So if you're uncomfortable, stand up and stretch for just a
minute.
Okay,
compliance. Our ReposiTrak compliance business drives, as Todd
mentioned, the scale of our network, the number of players, of
connection in the network. That's critically important. As this
becomes a larger and larger community, it's almost the network
value that we're experiencing. For those of you who understand
network, it's that n-squared phenomenon and we are there. We're
feeling really good about the progress we've made here over the
last several years. We have, I think, something over 60 compliance
hubs and growing tens of thousands of facility compliance
connections. Most importantly, most importantly, our compliance
levels are at record highs and continue to improve. The truth is,
that's how we measure our customer success.
Now,
during the second quarter, we also began to increase the scope of
our compliance services. I already mentioned the fact that one of
our larger customers, who had been a supply chain customer,
interestingly enough, began to use ReposiTrak as its corporate
sustainability system. That's important because it now means that,
not just a food safety concept that we do with the ReposiTrak
compliance Management capabilities, but it's highly extensible to
other areas.
In
addition to this successful industry adoption of ReposiTrak is
a—think of it as a standard compliance platform now because
of its size and scope and endorsements from various trade
associations. We will, over time, extend the scope of ReposiTrak
compliance to include Track & Trace. Of note, in addition to
our current methods of doing that, we're also exploring the
development of a version of our Track & Trace capabilities that
would use blockchain as the storage medium. We have a lower-cost
way of doing this than the methods that other people are talking
about, and we think that's terribly important, because for any
Track & Trace technology to be broadly adopted by the U.S. food
supply chain, it has to be economically palatable for a low-margin
industry to absorb. Long term, this is a significant advantage for
us versus some other talked-about alternatives. There is a
blockchain in our future.
Moving
on to the supply chain application suite. Our extensive supply
chain capabilities drives, as Todd mentioned, the scope of the
activities that we can provide to our ReposiTrak network and,
ultimately, therefore, the revenue that we produce from each
customer. As we said on our last call, we would have an excellent
quarter for our supply chain activities. It certainly was that; it
was record growth rate and certainly, in revenue. These deals,
taken in context with our expanding compliance mandate, are proof
that we can increase the scope of the services we offer to
suppliers on our network and the revenue per customer. Frankly, to
me, it shows the depth to which we're building our customer
relationships. It also obviously shows the power of the platform
and how linking the supply chain applications to our compliance
network will accelerate the growth of both sides of the
business.
Okay,
last but not least—don't get comfortable, we're not done
yet—will be MarketPlace, our B2B e-commerce platform. If you
remember, when we started working on MarketPlace, just like when we
started working on our ReposiTrak compliance offering, I said
MarketPlace could be a big deal or it could be nothing. It took two
years before we declared ReposiTrak to be a big deal. Well, we're
barely a year into developing MarketPlace, and I think we can
already declare that it's going to be a very big deal and highly
complementary to both our compliance and supply chain
businesses.
MarketPlace,
if you're trying to visualize it, is really the convergence of all
of our supply chain capabilities with our compliance network on a
unique B2B e-commerce platform that has a look and feel not unlike
Amazon but has the advantage, from an industry perspective, of not
being Amazon. It creates a community of ReposiTrak suppliers,
retailers and wholesalers that want to find one another to do
commerce. MarketPlace, interestingly, uses artificial intelligence
to help them find one another in the form of our unique
recommendation engine. It suggests alternative suppliers to a
retailer, a wholesaler looking for new products in a particular
category across potentially hundreds of attributes that might be
important to that particular buyer.
-6-
Once a
buyer and seller are linked to one another in the MarketPlace,
we've incorporated additional artificial intelligence-based
abilities in our forecast and ordering system to allow them to
transact business with one another in a much more efficient manner
than they otherwise could. This is the key. MarketPlace is not
simply an electronic catalog. Certainly, it brings buyers and
sellers together. It enables them to find one another. But more
importantly, it connects their systems together and enables them to
transact business using all of our supply chain Management
capabilities. There is simply nothing else like it, period, over
and out. MarketPlace is especially interesting in that, in this
case, we think it's going to accelerate not just the scope of our
network but also the scale. We think it is innately attractive to
the industry, and it will bring people to us that then become
customers of both our supply chain and our compliance Management
capabilities.
As we
highlighted in the press release last week, the MarketPlace pilot
we had with one of the world's largest retailers is now
commercially deployed. We're enabling store-level ordering through
MarketPlace for this customer in more than 500 stores, replacing an
internal catalog and manual systems that they had used for decades.
Currently, this customer is enabling a few non-food categories and
already has a plan to expand to other, we'll call it, stuff at this
point.
Currently,
we're also, as you saw in an announcement from us a couple of
months ago, working with GMDC to aggressively introduce MarketPlace
to its members. We expect GMDC members to begin entering their
products into MarketPlace before the end of this fiscal year, and
this will, ultimately, be very, very important to us. Remember,
GMDC is a trade group that represents over 600 non-food personal
product kinds of suppliers who supply over 125,000 retail
locations, representing more than $500 billion in sales. This will
supercharge MarketPlace's growth in terms of both the number of
participants using MarketPlace and the dollar value of transactions
running through it. Importantly, GMDC's activities, remember, are
focused on non-food items. Incidentally, in case you are wondering,
about 40% of all of the suppliers that we work with in ReposiTrak
compliance are non-food.
The
level of interest in MarketPlace from our customers is not like
anything that I have seen with our historical product introduction.
Frankly, we have the luck of timing on our side right now; our
timing simply could not have been better. Amazon's acquisition of
Whole Foods has galvanized the industry by highlighting the need
for a B2B e-commerce platform to help them more efficiently manage
commerce with their suppliers. Those industry participants
understand the long-term competitive threat that Amazon represents
and are looking for an alternative B2B e-commerce platform, one
that does what Amazon does but is not Amazon. With our network of
suppliers and our compliance, supply chain and e-commerce
capabilities, we have a shot, it's a shot, at being the not-Amazon
B2B e-commerce platform. We're in advanced conversations with a
number of very large players. Frankly, the opportunity could be
very, very large but, as usual, our approach is going to be crawl,
walk, run on the execution side.
Speaking
of execution, we are continuing to invest in execution to improve
our ability to address the growing scale and scope of our network.
Specifically, we're continuing to improve the execution of our
Success Team. Last quarter, we highlighted our efforts to drive the
productivity of the Success Team to tackle our growing pipeline of
connections. As you think about the scale of what we've done with
this team, I'd like you to think back less than three years, when
in our first year of doing business in the ReposiTrak compliance
segment, we did about 200 connections. I'm proud to say now that we
conveniently do 20,000 connections in the typical year, and our
compliance rates are higher. In other words, we have massively
scaled the business in terms of its ability to take care of its
customers, simultaneously improving the quality of our result for
our client. I bet you can tell from my voice that I'm very, very
proud of the team and the fact that we could do that.
-7-
This
quarter, we leveraged new tools from our 10x Project to help the
Success Team better address the growing scope of capabilities of
ReposiTrak network. The team is increasingly capable of working
with customers across all three of our application suites:
compliance, supply chain and MarketPlace. Some of you have asked,
"Why don't you just hire more Success Team members to drive
growth?" We have, but nine women in a room for a month does not
make a baby. We will continue to expand the Success Team, and it
has grown, in fact, every year. However, this group has the
relationship with our suppliers on our network, and I'm a firm
believer there should be just one point of contact with our
customers for all of our services. Having multiple people call on a
single account is confusing and, frankly, ineffective.
Training
the Success Team to be able to deal with our supply chain and
MarketPlace services is in process, it will be ongoing and it will
take some time. But an added benefit of the single group focused on
our customers is it will also help drive, ultimately, our own
profitability. As we drive up our revenue per customer, and we have
an increasingly largely fixed common technology platform, we will
also have a largely fixed cost sales platform as well. Naturally,
though, because of the complexity of multiple product sales, this
will create stresses and strains on execution, but I know we're up
to the task and that the strategy substantially decreases our risk
of single product exposure and competition. It enables us—and
this is important—to lead the market rather than be a
follower. I have simply seen too many companies fail at execution,
so it's paramount that we take a disciplined and logical approach
to growth, and that we get it right. It is our core strength, and
we intend to keep it that way.
Our
strategic vision is coming to fruition, and we're successfully
transitioning to a Platform as a Service business. Our business has
unique characteristics that will allow us to be unusually
profitable. We have a single, largely fixed-cost technology
platform for all of our applications. This keeps our development
costs down, it enhances our speed-to-market for new applications
and capabilities, but most importantly, from the technical
perspective, it provides an amazingly robust, remarkably stable
experience to the customers that use it. We have a unique industry
endorsement which helps us drive adoption. Last, and most
importantly, we have a deep cultural overriding commitment to our
customers' success.
As a
result, we are already more profitable than any similar Company
that we can think of, and we'll continue to generate strong
operating leverage and superior earnings growth. We have the
opportunity for scale because we can see hundreds and hundreds of
hubs, hundreds of thousands of connections and a multiple
self-reinforcing application set where we are well-positioned to
generate significant revenue growth across the network. Combined
with our profitability profile, this should translate into very
high earnings potential. We think, ultimately, that will drive
valuation.
I want
to conclude by reaffirming our outlook for our fiscal 2018. We feel
very good about our ability this year to generate record revenue,
record net income and record operating cash flows. The work we've
done is setting the stage for several years of phenomenal revenue
and earnings growth.
Okay.
Time for a few questions. Sorry I went on so long.
Operator:
Thank
you. If you would like to ask a question, please signal by pressing
star, one on your telephone keypad. If you're using a speakerphone,
please make sure your mute function is turned off to allow your
signal to reach our equipment. Again, press star, one to ask a
question.
We'll
first go to Ananda Baruah, Loop Capital.
-8-
Ananda Baruah:
Good
afternoon, guys. Thanks for taking the question. Congrats on a
strong quarter, solid performance, and on a handful of really
exciting structural realizations as well. I guess, a couple for me,
and just to start off, Randy, going back and touching base on your
comments. It sounds like you guys feel like you've sort of crossed
an important structural, I'll call them, milestones, but at least
accomplishments is probably better. What are some of the specifics
as we think about 2018 for you guys, with regards to sort
of—I guess, walk us through the initiatives. How should we
expect them to manifest as you drive scale and velocity across
services, and not necessarily from a numerical perspective, but
just sort of kind of walk through some of the dynamics we can
expect to see from you guys. Then, I'd just love to get your view
on how we should think about these new hub adds this year as well.
Thanks.
Randall Fields:
Okay,
Ananda, thank you. I love how you teed that up. I like to talk
about the things that are happening that we didn't expect, the
surprises. I was just at a conference of virtually every
significant food retailer in the U.S. and their senior executive
teams, and all anybody's talking about is the Amazonian threat. It
feels to them as if, unlike the Walmart threat of years
ago—remember, Walmart was this four-walled retailer that
added food. In a sense, they could look at that competitive threat
and say, "Well, they are, after all, sort of like us." Amazon is
like an alien invasion. This is this Company that exists on
computers, hardly manifests itself in—as somebody down the
street, Whole Foods notwithstanding. It represents a very different
kind of threat and, to a certain extent, they think of it as an
existential threat.
What
it's done that's extraordinary, and we want to capitalize on this,
is to cause the industry to think outside of the, what I call, the
incremental box. The industry recognizes that adding 10 more SKUs
of mustard isn't the way to defend against Amazon, that it may be
critically important to find some pretty fundamental sorts of
changes, and you're starting to hear the word platform inside the
industry. You probably noticed that Target bought Shipt. That
wasn't just an acquisition, it's really a platform, and it's going
to be available to other retailers. There is more interest today in
technology and what technology can do for the industry than I've
ever seen, and people are willing to explore things that I can
simply tell you they would not have explored five years
ago.
Qualitatively,
it's been teed up for us in a way that's pretty exciting. We need
to capitalize on it but, most importantly, we need to execute
against it. This is an industry that is terribly afraid of doing
things that don't work. There's a very high fear level. What they
want is a vendor who is reliable, that focuses on them and delivers
the results that they were contracted to deliver. That's one of the
reasons that I have this constant obsession with our execution. The
change to the industry that Amazon has created is to open the minds
of the players to alternatives they would not have thought of a few
years ago like our MarketPlace, like our supply chain applications,
like the linkage between all of those things. What they're
recognizing is that when you buy into a platform, as they are with
us, where everything is connected, that you don't have to buy 22
different individual applications and figure out how do you strap
those together. We are buying the one thing for this industry that
they're running out of: time, time, time. It's very exciting for
us.
Our
reputation is excellent inside the industry. As long as we continue
to execute the way we've been executing, I think the future for us
looks very, very good. On your second question, in terms of hub,
our pipeline is deep. It's very deep. We're certainly adding a
number of hubs this quarter and next quarter. That's why the back
half of the year will be an exciting back half of the year, to say
the least. We feel very good about our pipeline, and we feel very
good about our execution, both.
-9-
Ananda Baruah:
That's
helpful. That's a really useful narrative. Just to follow up on
that, Randy, and GMDC specifically. I think you've actually said
you thought it could really amplify—I mean, I think you used
the term supercharge MarketPlace. Kind of post-endorsement now, how
do you guys envision that, the endorsement, or whatever else that
GMDC will do throughout the industry with regards to MarketPlace?
How will that begin to filter into your conversations for
adoption?
Randall Fields:
Well,
they have 600 members. I think they have around 80 or 90 retailers,
only a few of which are existing customers of ours. What this does
is to give us a chance to show one of our three product set to a
whole bunch of new people. I am sure that the adoption rate, at
least for MarketPlace, across this group of 600, will be high. Now
we have a chance to show people that we do what we say, that we're
easy to work with and, most importantly, we have other things that
we can do for them simply beyond MarketPlace that will improve the
profitability and reach of their business.
All
we've ever asked for from a prospective customer is, give us a
chance, work with us. What you're going to find is that our
execution is brilliant, and we will do what we say. An example that
we're—that I'm excited about, some of the first suppliers in
MarketPlace were interviewed by us just to see how they had done,
what was their experience in MarketPlace. We talked to the COO of
one of the suppliers who said, "Wow!", literally, "Wow! My sales
for January are up 80%. Thank you to your MarketPlace. We see this
as a whole new distribution channel for us, and we couldn't be more
excited about it. We're putting our 760 items into this MarketPlace
system of yours because we think this is a great place for us to go
to market." Our customers are experiencing success, and we're going
to do this crawl-walk-run style. Suppliers sell more, buyers get
what they are looking for, and both sides are successful. As long
as we continue to do that, (inaudible), this is a very exciting
notion.
Ananda Baruah:
That's
great. Really helpful. Thanks a lot. Appreciate it.
Randall Fields:
Thank
you.
Operator:
We'll
next go to Tom Forte, D.A. Davidson.
Thomas Forte:
Great.
I have one question for Randy and then a follow-up. Randy, you had
touched upon this a little. First off, congrats on the MarketPlace
announcement, and wanted to know if you could discuss how the
customer support expanded use case for MarketPlace and then the
pipeline of retailers and wholesalers that also could potentially
benefit from using MarketPlace.
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Randall Fields:
Yes.
First, thank you, Tom. We would name, but can't name, the
particular retailer. We have a long-standing relationship with
them. This was initially a trial on their part to see if what we
were talking about could move them forward with a program that
they're trying to execute, which is localization. That's a big
topic for retailers. If you are a retailer that has stores across
the geography, each of those cities across that geography likely
has its own sports teams of interest, might have some food vendors
of interest, et cetera. The question is, how do you manage that
without losing control of your business? There's always a dialogue
inside our industry, centralization of merchandising versus
decentralization. What we've done in MarketPlace is to create a
technical environment where you can have the best of both
worlds.
We
think it's a big idea. We've now proven it to the satisfaction of
this retailer, which means they're going to go to some other
categories of merchandise the same way. We are—it's fair to
say, we're deep in conversations with some other large, both
retailers and wholesalers, about the adoption of the very same
idea. My confidence level that we'll move quickly with this is
higher. Again, it's execution-dependent, but the team now is so
tuned to execution that it's easier to get them lined up and doing
it than it would've been a year ago. I think, in general, larger
retailers, large wholesalers, distributors, all will have an
interest in the use of this particular platform. Once they're using
this platform, it makes perfect sense to me that they should expand
its use into more of the supply chain things that we do as well as
the compliance things that we do. Like anything else, I see this as
a three-pronged attack, if you will. If we can get people to try
one of our services and we deliver, I think it's not terribly hard
to get them to use the other things that we do.
Thomas Forte:
Great.
Then, for my follow-up, you touched a little on the notion of
artificial intelligence. I was hoping you can give more details on
some of the other technical capabilities for MarketPlace, what
makes it unique.
Randall Fields:
Well,
there's four or five things. Remember, the most unique thing, in a
sense, is that we're not Amazon. If you consider the alternatives
for a B2B marketplace, people immediately think about, say,
Alibaba. Well, the problem with Alibaba is there's a lot of people
that are nervous about doing business across several oceans. I
won't go any deeper into that, but I think you get what I mean.
People are looking for what's a B2B marketplace? We don't want a
marketplace that will compete with us and disintermediate us,
meaning Amazon has the unfortunate characteristic, amongst other
things, of taking the data of people who use it and using it
against them, right? You've seen that, where, I'm a marketplace
seller of widgets, and Amazon notices how well widgets do. The next
thing you know, they're being sold by Amazon LLC.
We will
never be, if you will, a competitor to people using it. We're never
going to be direct-to-consumer. We are going to be B2B. Our job is
to take friction out of the buying process because, remember, at
the base of our supply chain applications, we directly connect to
people's systems. We eliminate DDI and other forms of weird
communications, et cetera. What we can do is to make it faster,
less error-prone and way less expensive to actually buy things
through the platform. Again, that's very different than Amazon,
which is really just an online place to buy stuff. As soon as you
bought it and it arrives, you have to put it into all your
systems.
-11-
With
our system, it's directly connected. The second the transaction is
completed and delivered, it's in your inventory systems, it's in
your pricing systems, all of the attributes of the items have been
transferred. It's pretty nifty. There's a compelling reason for
this deep integration across our capabilities. Probably the sexy
part of what we do is that we're not Amazon, but the meat and
potatoes part of what we do is that this is built to do business
because we've done this for years. This is what we've done for a
living, which is to effectuate transactions and settlements between
buyers and sellers in, particularly, the direct store delivery
business. We have deep experience at it. Frankly, this is just an
extension of what we've done for many years.
Thomas Forte:
Great.
Thanks, Randy.
Randall Fields:
Thank
you, Tom.
Operator:
We'll
go to David Ryzhik, Susquehanna Financial Group.
David Ryzhik:
Hi.
Thanks so much for taking the question and congrats on the very
strong results. Just wanted to follow up on MarketPlace. I think on
the last call, you mentioned that it would become a material
contributor in fiscal '19. Has that been pushed forward given your
better-than-expected demand? I have a follow-up.
Randall Fields:
The
answer is no. But our confidence—I guess, it's fair to say,
certainly, our confidence of it being a significant contributor in
the next fiscal year—remember, it's just a few months
away—is increasing. Now what we need to see, I'm—and
David, we haven't spent much time together, but I'm one of those
guys that likes to see it, touch it and see how we implement it
before I can figure out how readily we can scale it. I was blown
away at how rapidly the team was able to scale this activity for
this large retailer. That took away a lot of my doubts. We're about
to—I'd be surprised if, in the next two months, we don't do
another retailer upscale. If we can deliver it on the same time
line where they say: "This is what we want," and literally, two
weeks later, it's been delivered, if we can do that again, I'll be
even more confident of its contribution next year. It'll be okay
this year because we're experimenting, but it's next year that I
think it will be material. I think you said you had a
follow-on.
David Ryzhik:
Great.
Yes, just a high-level view on your international strategy. I think
in your prepared remarks, you talked about strategic options,
pursuing partnerships. Is that your only route internationally? Or
would you consider going it alone? Specifically, what regions
internationally would you be interested in?
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Randall Fields:
I love
that question, thank you. You can probably tell from this
conversation or any other conference call, we are
execution-focused. Our competitive advantage is that what we do
works, and we're maniacal about the delivery on the execution side,
and I really mean maniacal. The truth of the matter is we have a
very full plate now with the addition of MarketPlace. I think if we
were to take our eye off this ball and try and execute on making
this up in China, that—what could easily happen is we lose
our focus domestically and we don't do as well as we should for our
customers. What I'd rather do is to find people, companies that can
execute in those countries, have the—if you will, have the
Rolodex in China.
I'll
tell you the countries we're interested in: Asia, for sure;
certainly, all the countries in the EU; and some of the more
developed countries in South America. I think there's probably a
list of 10 to 12 countries where what we do has a high degree of
applicability. We are the U.S. standard, so I think it would be
pretty easy for us to do what we do abroad. We have multi-language
capability. What we really need is a partner that has the same sort
of Rolodex to their retailers and wholesalers that we have here in
the U.S. Let's see if we can be successful at finding those
partners. If we can't, then as time goes on, we will have to find a
way to do it ourselves. It's an opportunity that shouldn't be left
alone, but we can accelerate the development by finding
partners.
David Ryzhik:
Great.
Just a housekeeping, I guess, tax legislation. Most of your revenue
is, I guess, in North America, U.S. I guess just a simple, how can
we think about the tax rate? I think you would just adjust
downwards that rate?
Randall Fields:
Yes,
all goodness for us, too.
David Ryzhik:
Just
last one, also accounting question. ASC 606, I'm not sure, would
that impact you in any way?
Todd Mitchell:
No, not
that we can see. It's actually a—we're reviewing the issue,
as is prudent, but it tends to have less to do with SaaS companies
than it does with a lot of other companies.
David Ryzhik:
Right.
Software. Well, thanks so much for taking my
questions.
Todd Mitchell:
You
bet. Thank you. Bye-bye.
Operator:
We'll
go to Andrew Gordon, EF Gordon Capital.
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Andrew Gordon:
Hey,
Randy and Todd. Thanks for making the time and congrats on the
impressive strategic initiative this quarter. It's really exciting
to watch you guys develop this Company. Two questions, if I may.
First, on GMDC, it sounds like it's a major potential partner for
you. I'm just wondering if you can help us understand how you're
thinking about the potential revenue contribution in the near- and
long-term?
Randall Fields:
There
are wonderful—this is an industry that's blessed with a
number of trade associations that are absolutely world-class at
representing the interest of the industry itself. GMDC is one of
those. FMI is one of those. ROFDA is one of those. I couldn't be
more humbled by the fact that we have relationships with all three
of those. What they're especially good at—and it's
interesting, it's in their mission—they want to increase the
revenue and, therefore, the profitability of their members. They
actually see as part of their membership drive, "How do we help
people to sell more?" They have an educational component by which
they teach especially small and emerging companies, how can you
better position yourselves with retailers so you get more shelf or
get on the shelf. They're a wonderful group of people. We are a
natural fit because we're going to help their members sell more to
one another. But in general, in our MarketPlace, we're going to,
hopefully, help their vendors, if you will, just generally sell
more. There's a very natural alignment of interests. How we
ultimately monetize MarketPlace is different. We have a number of
paths to follow, and we haven't chosen any particular path yet.
First, we want to demonstrate success, and then we'll figure out
how to monetize it later.
Andrew Gordon:
Okay,
fair enough. Maybe I can follow up with you a little bit more
offline. The second question I wanted to ask you, given that you're
already halfway through the March quarter and you're reiterating
your confidence in reaccelerating revenue growth through year-end,
I'm wondering if you can just provide a little more clarity around
the quality of your visibility into the revenue forecasting. I know
that there was a bit of bottleneck with the heavier-touch nature of
extending compliance in the first quarter. Additionally, on this
call, I hear you say that you have a deep pipeline into additional
hub adds in the near term. I'm just trying to figure out how you
say to yourself, given that we have X new customers in our
pipeline, we have Y degree of confidence that we'll be able to
achieve our stated revenue forecast for the rest of the
year.
Randall Fields:
Well,
remember, to a great extent, it's under our control because some of
these are more backlog-y, if you will, than they are pipeline
prospects. The limitation has much to do with execution, pacing, et
cetera. One of the things we try and caution people, not as
successfully, certainly, as I'd like: we're lumpy. We're going to
continue to be lumpy for some time. The consequence of that is that
I know that it causes people to wonder, well, what's happening
quarter-to-quarter. But we don't manage the business
quarter-to-quarter. I mean, they are interesting benchmarks,
certainly, for us.
Having
said all of that, as we look at the back half of the year, our
capacity is good, our compliance is good, our pipeline is good, so
we feel very good about how we're going to manage through the
balance of this year. If the question were a little bit different,
like what could happen to cause you to change your mind about that,
really not much. For the most part, things are already in motion.
Obviously, lots of activity around MarketPlace, and we're just not
sure. Let's put it this way, a few months ago, I'm looking at Todd,
see if he nods his head yes. Are we surprised at how well
MarketPlace is doing at the moment? Would we have guessed this a
few months ago?
-14-
Todd Mitchell:
I think
it's doing well beyond our expectations.
Randall Fields:
Yes,
it's just—this is something we haven't done
before.
Todd Mitchell:
But in
terms of your visibility, nothing in this world is certain, but I
mean, think about the arc of our activities over this fiscal year.
We spent the first quarter fine-tuning our execution, so increasing
our capacity to do things. Second quarter, we introduced a ton of
new capabilities to our network in the form of new supply chain
applications to the compliance hubs in the form of MarketPlace.
It's kind of a layup for us into the second half of the year. We've
got more productive teams, we'll have more productive things to
offer, and we've been holding back a little bit on net new. We're
kind of aligned, and we feel pretty good about the
year.
Andrew Gordon:
If you
don't mind me just quickly rephrasing to make sure we're on the
same page, because I'm not quite sure how you delineate between
something you consider as backlog versus pipeline. But as I'm
hearing you now, it sounds like you're saying the results
through—and I understand it's not quarter-to-quarter, but the
results that you expect to achieve are really about execution
rather than achieving the firm interest. You know that there's a
firm interest, a demand from the customers. Is it just about having
the teams form …
Todd Mitchell:
Yes. To
be clear, most of what we're talking about is what we would call
pipeline, it's not formal backlog.
Randall Fields:
Right.
Andrew Gordon:
Great.
Well, thank you. That's all for my question. I appreciate the
time.
Randall Fields:
Thank
you.
Operator:
Tom
Forte, D.A. Davidson.
-15-
Thomas Forte:
Yes.
Randy, I had a follow-up question. In the prepared remarks, you
talked about blockchain, so wanted to hear what your current
thoughts were on blockchain and how that may be an opportunity for
Park City to leverage that over time.
Randall Fields:
Yes. I
think there's a limited area where blockchain has potential, but we
would deploy it differently than people currently do. Blockchain
has some applicability to tracking and tracing products through the
supply chain. We think of blockchain as a spaghetti, a narrow, long
view of data where, historically, what we do, because we certainly
have the capacity today to do Track & Trace, we like to have a
broader view, more like wide and deep as opposed to narrow and
deep. People are thinking of blockchain, and it's—I think
people are making an incorrect assumption. All of the blockchain
technology that's being discussed today requires labeling be put on
the boxes, and that those labels are scanned at every single step.
The inherent problem with that is the cost of the labor of
scanning.
In our
prepared comments, we mentioned, Tom, that this is an industry of
pennies. There's a need to have a very inexpensive way to do this.
I think a combination of blockchain and our secret sauce will
enable us to have a very low cost way of doing tracking and tracing
when there's a market for it. Right now, people are experimenting,
thinking, et cetera. But when tracking and tracing becomes a
thing—it's not a thing yet—when it becomes a thing, we
may have two different ways of doing it: our current way as well as
a blockchain way. We're working on it.
Todd Mitchell:
I think
the value, at that point in time, will be in our network,
our—the ability to deploy it rapidly across the entire
industry, whatever the technology solution is. Our existing
connections make adoption—the barriers to adoption, much
lower than anybody else's.
Thomas Forte:
Thanks,
Randy. Thanks, Todd.
Randall Fields:
Thank
you.
Operator:
That
concludes today's question-and-answer session and our conference
for today. Thank you, all, for your participation, and have a great
day.
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