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| EX-99.2 - ADDITIONAL EXHIBITS - PARK CITY GROUP INC | ex99-2.htm |
| 8-K - CURRENT REPORT - PARK CITY GROUP INC | pcyg8k_nov162020.htm |
Exhibit 99.1
Park City Group, Inc. (NASDAQ:PCYG) Q1
2021 Earnings Conference Call November 16, 2020 4:15 PM
ET
Company Participants
Rob Fink - Managing Partner, FNK IR
John Merrill - Chief Financial Officer
Randy Fields - Chairman & Chief Executive Officer
Conference Call Participants
Thomas Forte - D.A. Davidson
Operator
Greetings and welcome to the Park City Group's Fiscal First Quarter
2021 Earnings Call. At this time, all participants are in a
listen-only mode. Our question-and-answer session will follow the
formal presentation. [Operator Instructions] As a reminder, this
conference is being recorded.
It is now my pleasure to introduce your host, Rob Fink with FNK IR.
Mr. Fink, please go ahead.
Rob Fink
Thank you, Operator, and good afternoon, everyone. Thank you for
joining us today for Park City Group's Fiscal First Quarter
Earnings Call. Hosting the call today are Randy Fields, Park City
Group's CEO and Chairman; and John Merrill, Park City Group's
CFO.
Before we begin, I would like to remind everyone that this call
could contain forward-looking statements about Park City Group
within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements are statements that are not
subject to historical facts. Such forward-looking statements are
based upon current beliefs and expectations. Park City Group
management are subject to risks and uncertainties, which could
cause actual results to differ materially from those
forward-looking statements. Such risks are fully discussed in the
company's filings with the Securities and Exchange Commission. The
information set forth herein should be considered in light of such
risks. Park Study Group does not assume any obligation to update
information contained in this conference call. Today, the company
issued a press release overview on the financial results that they
will discuss on today's call. Investors can visit the Investor
Relations section of the company's website at parkcitygroup.com to
access this press release.
With all that said, I'd now like to turn the call over to John
Merrill. John, the call is yours.
John Merrill
Thanks, Rob, and good afternoon, everyone. Today we report
financial results for the first quarter of fiscal 2021 ending on
September 30. Highlights of the quarter are as follows. Recurring
revenue growth for our SaaS business which includes compliance and
supply chain was up 6%. Marketplace revenue grew 15%. With growth
in all three product lines are consolidated revenue grew 9%.
SG&A expenses decreased 10%, net income more than tripled, cash
from operations was $1.22 million and our balance sheet remains
strong. The bottom line is that over the last year, we have built a
profitable diversified growing business with a strong recurring
SaaS component and a modest cost structure. Considering the
significant challenges related to the pandemic and ongoing
uncertainty, I am encouraged with our results.
As we've communicated before, our software business comprised of
compliance and supply chain services is now set to be [ph] all
recurring in nature. Eliminating a significant amount of one-time
license revenue and shifting to recurring revenue while maintaining
profitability was a significant challenge to say the
least.
To be sure, the pandemic has elongated sales cycles for our
software solution and created near-term challenges. But in the
first quarter, we grew our software business and we have proven the
value we bring our grocery customers by helping them navigate this
environment. We still have just 10% penetration with our existing
customers. So farming our own customer network remains a top
priority for opportunity. We could significantly grow our software
business just by farming our existing network.
The second revenue stream in our business is the marketplace, which
allows buyers and sellers to source hard to find things within our
network of 20,000 plus vetted retailers and their suppliers. As I
have said before, marketplace is largely transactional and
inherently unpredictable. The size and scope of transactions can
vary from quarter-to-quarter based on seasonality, buyer
preferences, pricing and the latest demand for those hard to find
things. Because we sit between buyer and seller, our margin whether
as a markup of goods or commission is substantially less than we
get in the software side of the business. Gross Margin on
incremental revenue of our software business base is approximately
80 to 85%. Conversely, marketplace is on average roughly 5%. We are
focused on expanding that margin both within and outside the
traditional grocery segment. Randy will speak more on that topic
during his remarks.
While both the software marketplace components of our business are
difficult to separate from our business strategy and software
suite, our overall offering to our customers is a combination of
solutions that enable customers to be compliant, have more
actionable visibility into their supply chain, replacing vendors,
diversifying product offerings and sourcing hard to find items.
These two parallel product offerings provide management and
investors visibility into our revenue stream utilizing their
current revenue as a baseline and the opportunity for higher growth
from our marketplace offering.
While marketplace generates a lower contribution margin, it remains
profitable. As we said on the last call, our fixed costs are fully
covered by our recurring revenue giving us predictable and
sustainable profitability. In addition, we have significant and
growing cross-selling opportunities between these three products:
compliance, supply chain and marketplace.
Turning to the numbers; fiscal year 2021 first quarter revenue was
$5.23 million, up 9% from $4.80 million in the same quarter last
year. Total operating expenses decreased 1% from $4.7 million in Q1
2020 to $4.6 million and Q1 2021. The principal driver and the
decrease in total operating expenses was a $270,000 decrease in
sales, general and administrative costs. In response to the COVID
environment we sat through cost cutting measures, our goal was to
reduce cash operating specified by $100,000 a month absent
marketplace. I believe our numbers reflect we are headed in the
right direction.
The cost of services and product support expenses increased 8% from
$1.8 million in Q1 2020 to $2 million in the same period in 2021.
The increase was a result of higher expense associated with higher
marketplace revenue and partially offset by cost reductions and
hosted software charges. Sales and marketing expenses decreased
from $1.4 million in Q1 2020 to $1.3 million in Q1 2021. This 9%
decrease was the result of lower sales travel, trade shows and cost
reductions offset in part by higher commissions due to higher
revenue.
G&A costs decreased from $1.2 million in Q1 2020 to $1.1
million in the same period of fiscal 2021. This was primarily the
result of lower travel related costs, completion of certain
projects and cost cutting measures we implemented in the fourth
quarter of fiscal 2020. For the first quarter of fiscal 2021, GAAP
net income was $555,000, or 11% of revenue, versus $178,000, or 4%
of revenue. GAAP net income to common shareholders was $408,000, or
$0.02 per diluted share compared to $32,000, or $0.00 per diluted
share.
Turning now to cash flow and cash balances. For the first three
months of Fiscal year 2021, we generated cash from operations of
$1.2 million compared to $713,000 in the prior year period, an
increase of 72% due to a higher operating margin on incremental
revenue. Total cash at September 30, 2020 was $21.2 million
compared to $20.3 million at the end of Fiscal year
2020.
On a final note on cash and balance sheet strength; keep in mind,
balance sheet strength is a necessity to our customers and they
demand it particularly in this unprecedented time. Therefore, we
continue our focus to grow cash through recurring revenue, a
well-controlled cost structure, maximizing profitability and
generating value for customers and shareholders.
With respect to our stock buyback program; as we said during the
height of the code pandemic, we made a prudent decision to halt our
buyback program. We did not repurchase any shares during the fourth
fiscal quarter or the first fiscal quarter. The company has $1.36
million [ph] remaining on its existing stock buyback program and
given our current ability to generate cash, we may consider
optimistically resuming the program at some point in Fiscal
2021.
Thanks, everyone, for your time today and at this point, I'll pass
the call over to Randy. Randy?
Randy Fields
Thanks, John. For the past two years, we've been focused on
building out the three legs of our stool: compliance, supply chain
and marketplace. This evolution follows a logical progression, our
supply chain and compliance products aside from being
industry-leaders have enabled us to create the industry's largest
database of compliant suppliers. In fact, likely, it's the largest
database of food distribution suppliers, period.
We're now in the process of monetizing that highly scaled data. The
initial foray to monetize the database was simply helping our
customers find alternative vendors. When a particular vendor failed
[ph] remain compliant, hence, marketplace was born. From simply
avoiding and providing -- call it informational capabilities to our
customers -- we began helping our customers actually find hard to
get items. Both of these capabilities have grown over the last two
years and clearly for both services, the current environment is
excellent. Not perfect, but certainly excellent. Most participants
in the global food supply chain are looking for new products and
new suppliers. As a result, we expect to see an accelerated
adaption of our platform in the future.
Our obsession with execution, the reliability for our customers
will be very important in marketplace just as it is in our other
product lines. But where we are, we think big things are possible
with marketplace; so we shall see.
As we said last quarter, the transition from one time to recurring
revenue is effectively now complete. So for the most part, our
software is now sold on a highly predictable SaaS model.
Simultaneously, our marketplace offering has now been validated
with multiple successful use cases. It's proven to be a very
valuable platform amidst the pandemic.
We've helped customers source everything interestingly, from wood
pellets to PPE. While we expect each of our product offerings to
grow, the growth will not be linear and it will not be quarterly
sequential. Obviously in any given quarter, one product or another
will be the star. Not all products will grow in any given quarter,
but overall, over the course of a full fiscal year, we expect each
product to grow and importantly to contribute to the bottom
line.
So, as we start a new fiscal year, we now have several things in
place. One, we have three market leading offerings that are
synergistic and value adding to the retail food industry, and they
each have significant cross-selling opportunities across the board.
Each of the lines is independently attractive to our prospects. In
other words, we have multiple points of entry, if you will, into
our customer relationship portfolio. We've been extremely careful
over the years to only grow as rapidly as we could deliver superb
results to our customers. Our obsessive focus on executional
excellence with our customers is now paying dividends as they
say.
We have a highly visible SaaS revenue stream, which contributes far
more and covers more than our fixed costs and enables us to have
consistent now profitability and cash flow, and we have the
strongest balance sheet in our history. This was all on display in
the first quarter. We grew all three product lines, we grew
consolidated revenue, we more than tripled our net income, we
generated significant cash, and we bolstered our balance sheet.
We're very proud of this progress and we certainly hope you are as
well.
As John says, the pandemic continues to present challenging
circumstances for Park City and our customers. That said, we're
very fortunate that we serve the grocery supply chain as this
segment of the retail industry is held up much better than others
in retail. Our prospective customers do not lack for ability to
survive, but ability to focus. Interestingly, the pandemic has
exposed the weaknesses of the supply chain, making us ultimately an
increasingly valuable partner to our customers.
In the interim, marketplaces emerged as a critical part of our
platform. As you can imagine, finding trustworthy compliant vetted
suppliers has been a tremendous challenge for the retail food
industry. As a result, marketplace contributed significant
transactional revenue to our top line this quarter, the second such
quarter in a row. The industry dynamics that served as long term
secular catalyst for us have not changed. If anything, they've been
reinforced, in fact, marketplaces enabling us to move out of our
traditional industry sector retail food, grocery chains and their
distributors and suppliers.
Potential customers in other verticals are reaching out to us and
even more interestingly, we've received inquiries from state
governments and multi-state procurement consortiums seeking to
utilize marketplace to help them source critical items like PPE and
other emergency supplies. In the near term, they're looking to
address the pandemic. However, longer term, this likely will allow
us to help these agencies deal with natural disasters of all sorts
and then the other urgent need that they might have. At the same
time, we do remain focused on increasing the recurring revenue from
marketplace.
Subsequent to the end of the quarter, we completed an agreement
with a leading grocer to utilize marketplace to source and purchase
local produce for its stores. The localization trend continues to
be a strong catalyst for grocers and our marketplace solution will
help enable this particular grocer to stock produce from local
farms in each location. This will prove to be an excellent
reference and use case. In other words, we think this idea has
legs.
So in summary, we're well-positioned. The pandemic will continue to
make things more difficult, certainly is slowing decision making
down and it's impacting our near term visibility. But we should
nevertheless continue to grow our top line and grow our bottom line
even faster, generating cash and bolstering our already strong
balance sheet. Compliance as we mentioned in our last call remains
critical but perhaps less-urgent. Retailers focused on keeping
employees and customers safe are temporarily putting compliance
needs to decide and that extends our sales cycle. That said,
however, our pipeline for both Tier 1 and Tier 2 hubs is excellent.
And there are new regulations being proposed at the FDA that should
further increase the need for what we do in the longer
term.
In terms of our supply chain services, retailers are exploring ways
to make the supply chain more resilient to meet future challenges
and this in turn creates more opportunities for us and our
offerings. Our scan-based trading solution continues to play a very
important role in managing inventories and increasing working
capital. In addition, our sales pipeline for our out-of-stock
offering continues to grow and we expect this product to contribute
to both our top and bottom lines this year. In fact, we recently
came to an agreement to expand our out-of-stock work with one of
our larger compliance hubs and that is, in our view, an example of
cross-selling and we think that will accelerate also over
time.
So all in all, I love where we are, and I hope you do as well. With
that, I'd like to open the call for questions.
Operator?
Question-and-Answer Session
Operator
Thank you. We will now be conducting a question-answer-session.
[Operator Instructions] Our first question comes from line of
Thomas Forte with D.A. Davidson. Please proceed with your
question.
Thomas Forte
Great. So Randy, and John, hope you're staying well. The first
question I had was, can you talk about the financial health of your
core customer and can you talk about the financial health of your
competition?
Randy Fields
Great question. Thanks, Tom. As I guess more indirectly said should
have been more straightforward. Retailers at this moment in time
are doing extremely well financially. They have as much business as
they can handle, they've gotten past their breakeven. They're all
from what we can tell in good financial shape. Their suppliers and
if you remember, our Tier 2 initiative and whatnot tends to focus
on the suppliers are not in as good or shape, but it's not that
they're in bad shape. It's that they tend to be paid a little bit
slower by retailers than was the case before. In some cases, some
of their products are selling a little bit more slowly because not
as many people are coming into the stores. So if you're a traffic
dependent vendor, you have not prospered as much during
COVID.
Having said that, everything that we're doing -- our receivables
are in good shape, obviously cash is in good shape. A couple of the
people that we see competitively are not doing very well. We have
one company that we compete with -- I obviously don't want to
either gloat or even talk about the depth -- is experiencing some
financial difficulty. That's helpful to us. Our balance sheet is
our calling card. We want our customers to be confident. The deeper
they get with us, the more they depend on us; the more they depend
on us, potentially the more nervous they would become if we were
not financially strong. So it's a virtuous circle. Good question.
Thank you.
Thomas Forte
Thank you, Randy. All right. So then as a follow-up question, it
seems that while people are not saying that we're going into the
shelter in place, lockdowns, we were in earlier this year, there
seemed to be some element of lockdown. And when I think about food
retailers, they may start limiting the number of products consumers
can buy. So to the extent you talked beautifully about how you've
helped with the marketplace get anything from PPE to other
products. Now that I guess this is kind of our second cycle of just
occurring. Do you feel like you have more visibility? And is it
possible you'll get more mandate for marketplace as a
result?
Randy Fields
Yes. Right now, we're carefully managing the use of marketplace.
And what I mean by that is the desire for us to act on behalf of a
retailer to help is greater than we are willing to fulfill. So we
are cautiously expanding marketplace. We indicated that this summer
would involve a great deal of introspection around marketplace and
its future. Obviously, we believe that it has substantial upside
and opportunity. We recently added to the staff -- senior staff of
marketplace, which means we're making commitments. I think we now
know enough about it and its processes that we're very confident
that it has the kind of legs that we had hoped for. It's important
to remember that we are simultaneously trying to expand the
recurring revenue use of marketplace and we think that clearly has
legs also. So we're pretty excited about how we stand
currently.
I'm not sure we have a long term view as to whether the products
that are being sourced today or the products that would be sourced
a year from now, but our business experience is because of our
operational excellence focus is that when someone tries us for
something, they know that we do a good job, we don't even have to
convince them of that. So it's not too hard to go from, let's say,
PPE, we helped you with your gloves, now, shouldn't we be talking
about some other things that you're having difficulty sourcing. We
really believe that's the path forward. I'm hoping that by the end
of the year, our fiscal year, that we will have moved past the
short term stuff in terms of COVID and people will begin to try us
to find things other than what today in an emergency they
need.
So even as supermarkets begin to restrict how purchasing is done,
the merchants inside of supermarkets need for us is growing, we are
limiting what we're willing to do at the moment to make sure that
were successful, that so far, I could not be more proud of the team
and how they've executed this. It's really -- it's a beautiful
thing to watch. So we're in a fascinating position where on the
basis of our existing business, we're very profitable, very
positive cash flow, and able to do a little bit of experimentation
that I think opened some doors to significant growth for us in
marketplace, we feel really good about how the world is looking at
COVID, what the potential reductions in consumer behavior through
limitations are likely to be.
And there's clearly now light at the end of the tunnel. So I think
everybody's beginning to plan and behave that way. And that's
certainly good for us. That's very good for us.
Thomas Forte
Excellent. All right, two more questions. If you'll indulge me, the
first is online grocery, you hear every day hear about the growth
of online grocery. Now, online grocery in many instances is just
buy online, pick up in store, or buy online, pick up in store
parking lot. So what does online grocery mean for your company as
far as an opportunity?
Randy Fields
Okay, another good question. Thank you. We play an interesting
role, one that we're experimenting with now and we also think this
has legs. Supermarkets have a great deal -- grocery has a great
deal of difficulty maintaining perpetual inventories on fast-turn
direct-store delivery kinds of items, like milk and eggs and things
like that. They just have a lot of difficulty with it, which means
that if you're a consumer and you go online to try and buy one of
these items, and for those of you who've done it, you get a text
message from Instacart or whoever the picker is in the store,
saying they don't have that, how do you feel about this? In other
words, the substitution rate is painfully high. I've seen numbers
as high as 30$ and 40%. It slows down the pickers, reduces
productivity for the supermarket, and frankly, becomes a pain in
the neck for the person doing the ordering. It's never a clean
order. So by maintaining a better level of perpetual inventories,
we think we can be of help. We are currently doing a pilot with a
major mass merchant chain in the US, one of the largest, where we
are maintaining those inventories for them, and then passing them
to their online systems. So that when someone goes to order, the
odds of knowing it's really on the shelf goes up
significantly.
So far, the customer doing this has seen sales increases of 30% to
50% on the items that we track for them, could be a fluke, we don't
think so. So as time goes on, we expect that that part of our
business and online grocery has a really interesting opportunity.
But it's in our wheelhouse, it's something that we can help with.
Because an out of stock, if you don't go in the store, is really
much worse. In other words, as a human being, you can go into a
store and you take a look and -- I want 2% milk half gallon, they
don't have any. But because you're a human being and your mind goes
really fast, you can see that they have quarts of 2% or a different
brand, and you're going to say -- I'll take this. The problem is if
you specify it in an order, and the picker is in the store picking
it, not you, you're going to have a whole different interaction
with that human being over the product that you wanted. So
substitutions are really terrible for the supermarket and the
customer experience, terrible for the consumer, period. And we
think we can help with that. So that's one area where we can play a
role in that whole online grocery business.
Thomas Forte
Great. So my last question for John. So John, you've done an
excellent job managing expenses during COVID. Can you explain on
the other side of COVID, when that is, how much of the cost savings
are sustainable? And how much of it is returns, as far as we talked
about traveling to conferences and things of that
nature?
John Merrill
Sure, I don't know when the new normal will be. But currently, for
the foreseeable future, we're not doing the travel that we're
doing. But Randy and I had gone line item by line item, and looked
at it less about the COVID, but more about ROI, what are we
spending. So there's two buckets, there's COVID-related, and then
there's also what makes the most sense for the company, as far as
expanding our business. And so, will travel come back at some
point? Of course, but I do believe we'll exceed the hundred
thousand dollars a month. As far as what our expenses are, what
travel will be, we've planned for that. But we're still committed
to that $100,000 per month, if you look back at June 30,
2021.
Randy Fields
Let me give you one other insight. In percentage terms, more than
90% of the cost reductions that we've done, our cost reductions
have nothing to do with COVID. If COVID comes, it goes away or
comes back, it doesn't make any difference. The only one that
really is stuck in there is travel. So with that, at this moment in
time, we've made structural changes to the business consistent with
technology investments that we've made over the previous few years.
In the next few quarters, you're going to hear us talk more about
that, because there's some exciting things coming on the internal
technology front also.
Thomas Forte
Wonderful, I look forward to hearing that. Well, thanks for taking
all my questions. I appreciate it. Thank you.
Operator
Thank you, ladies and gentlemen. This concludes our
question-and-answer session. I'll turn the floor back to Mr. Fields
for any final comments.
Randy Fields
Operator, thank you. We appreciate everybody spending time with us
this afternoon. As I mentioned in my part of the presentation, we
feel really good about where we are. And I suspect all of you as
shareholders are going to enjoy the company's performances here. So
relax, stay out of trouble with COVID, be safe and we'll talk to
you all soon. Thank you.
Operator
Thank you. This concludes today's conference. You may disconnect
your lines at this time. Thank you for your
participation.