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EX-99 - PRESS RELEASE DATED MAY 18, 2021 - PARK CITY GROUP INC | ex99-3.htm |
EX-99 - PRESS RELEASE DATED MAY 17, 2021 - PARK CITY GROUP INC | ex99-2.htm |
8-K - CURRENT REPORT - PARK CITY GROUP INC | pcyg8k.htm |
Exhibit
99.1
C O R P O R A T E P A R T I C I P A N T
S
Jeff Stanlis,
Vice President,
FNK IR
John Merrill,
Chief Financial
Officer
Randy Fields,
Chairman &
Chief Executive Officer
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
Tom Forte, D.A. Davidson
P R E S E N T A T I O N
Operator
Greetings, and
welcome to the Park City Group Fiscal Third Quarter 2021 Earnings
Call.
It is now my
pleasure to introduce your host, Jeff Stanlis, with FNK IR. Mr.
Stanlis, you may begin.
Jeff Stanlis
Thank you,
Operator, and good afternoon, everyone. Thank you for joining us
today for Park City Group's Fiscal third quarter earnings
conferencee 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 on
current beliefs and expectations. Park City Group Management are
subject to risks and uncertainties, which could cause actual
results to differ 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 City Group does not assume
any obligation to update information contained in this conference
call.
Shortly after
the market close today, the Company issued a press release over
viewing the financial results that we will discuss on today's call.
Investors can visit the Investor Relations section of the Company's
website at parkcitygroup.com to access this press
release.
With all that
said, I'd now like to turn the call over to John Merrill. John, the
call is yours.
John Merrill
Thanks, Jeff,
and good afternoon, everyone.
Q3 was another
strong quarter for the Company. We continued our focus on growing
our recurring revenue, expanded our product offerings, delivered
solid profitability and drove cash. Highlights for the quarter
ended March 31 are as follows.
Recurring
revenue for our SaaS business, which includes compliance and supply
chain, was up 13% to $4.57 million. Marketplace revenue grew 225%
to $1.45 million. With across the board growth, revenue increased
30% to $6.02 million. SG&A expenses increased 11% against the
30% revenue growth. Net income increased 184%. Year-to-date cash
from operations surpassed $3.35 million, and our balance sheet
remains strong with $23.2 million or approximately $1.19 per share
in cash.
The bottom line
is we have built a scalable, profitable and growing business made
up of two components, a recurring SaaS business and a transactional
marketplace business. We continue to drive both components with a
modest SG&A cost structure, which enables us to grow our bottom
line faster than our top line.
After two years
of transitioning from significant lumpy onetime revenue in our mix,
our software business is effectively all recurring. Simply put, it
is comprised of various food safety compliance and supply chain
modules sold on a monthly subscription basis. While we solve
complex business problems, our business is relatively
straightforward.
Let me take a
minute to add some clarity on how Management views the business and
perhaps help you develop a line of sight on how we may look going
forward. With our third quarter Fiscal 2021 results reflecting $4.5
million in recurring revenue, we internally assign that run rate as
our base in the software business out for the next four quarters.
Therefore, our next 12 months of base recurring revenue is $18
million, assuming no additional growth.
As we have
experienced a very low customer attrition and we are effectively at
100% recurring revenue, and we have a sales team compensated on
growing recurring revenue to our base, our SaaS revenue is highly
predictable going forward. This line of sight sets a goal, a 10% to
20% year growth rate. Conversely, before the transition from
license to SaaS, our recurring revenue was less than $13 million
per annum and top line revenue was highly dependent on generating
$5 million to $7 million a year in one time license or
services.
Predictability
on revenue, spending and bottom line was a challenge to say the
least. Over the last several years, our recurring revenue has grown
from about $13 million to about $18 million on a run rate basis,
not bad. To get a sense of what Management's goals are, you can
compound that $18 million run rate at the lower end goal of 10% for
the next few years.
I believe it is
important to point out we are not a quarterly-driven Company. Why?
As we have seasonal customers that may only need our services for
three to six months for the summer or during the holiday season,
not a lot, but it's impactful. That affects quarterly subscription
revenue. Our sales staff is paid on collections so that impacts
timing of expenses. Then there is non-cash items like depreciation,
stock comp and other accounting items that may create timing
differences. These are a few examples.
When we talk
about goals, they are annual goals, some quarters higher, some
lower. You, our Investors, ask how we can make the business easier
to understand and model. Now you have a line of sight.
What about
profitability and cash? Since we operate our fixed costs on a
modest spend, roughly $12 million per annum in cash and we see the
$18 million in recurring revenue, it's relatively straightforward
to plan our software bottom line expenses and cash flow. As I said
before, about $0.80 to $0.85 of any incremental revenue over the
$12 million base of the software business falls to the bottom line.
As we know our fixed costs, we are able to support higher revenues
without meaningful increases to our SG&A line. This is not
fuzzy math. The proof is in the numbers.
Let's talk
marketplace for a moment. As Randy and I have said in prior calls,
marketplace may or may not have its place in the Company portfolio
long term. We are certainly not there yet. In the meantime, it is
transactional revenue albeit highly unpredictable, it does fill a
customer demand and roughly provides a 10% contribution margin.
It's not the software business at north of 80% margin, but it does
meet a customer demand despite its long term uncertainty and lower
margin.
Marketplace
case in point. During fiscal 2021 as COVID-19 disrupted supply
chains and generated shortages of products around the globe, our
ability to source hard to find items within our network of 25,000
plus customers resulted in an unprecedented demand for personal
protection equipment or PPE. These products included nitrile
gloves, N95 masks, freezers, telecommunication devices and other
emergency management equipment. Our customers demanded it and we
delivered through marketplace.
While
marketplace revenue is at a lower gross margin than our SaaS
revenue, it provides incremental revenue, profitability and cash
flow to the Company. While we have experienced a significant
increase in marketplace revenue from PPE during fiscal 2021, it is
uncertain whether demand for PPE will continue at what level in the
future as the pandemic begins to abate. At this point, it's
anyone's guess.
Given this
uncertainty, we are evaluating options, which may include a
subscription-based membership to the marketplace network, similar
to an Amazon Prime. Buyers and sellers would pay a recurring
membership fee to have access to the network. Should buyer and
seller transact business on the marketplace platform, charge a fee
on that transaction.
While the
pandemic has extended the sale cycle, the 30% growth in the quarter
demonstrates that our customers are increasingly focused on both
our software and our marketplace solutions. The pandemic also
spotlighted the importance of more effectively managing the supply
chain and customer compliance. Customers suffered from severe
shortages and out of stock situations, leading to missed revenue
opportunities and pushing customers to online retailers. As a
result, we believe there is significant pent up demand for our
software solutions as things begin to normalize.
As I said
before, we have less than 5% penetration with our existing
customers. Farming our own customer network remains top priority
for opportunity. We can significantly grow our software business
just by farming their existing network.
To summarize,
we have a combination of solutions that enables customers to be
compliant, provide more actionable visibility into their supply
chain, replace vendors and source hard to find items. More now than
ever before, we are an important resource for our customers,
simultaneously driving Company revenue growth, profitability and
cash.
Turning to the
quarterly numbers, Fiscal Year 2021 third quarter revenue was $6.02
million, up 30% from $4.63 million in the same quarter last year.
The increase in total top line revenue reflects growth in both our
recurring software business and marketplace, up 13% and 225%,
respectively. Total operating expenses increased 20.7% from $4.4
million in Q3 2020 to $5.3 million in Q3 2021. The increase in
total operating expenses reflects largely a $1.3 million increase
in cost of goods sold associated with higher marketplace
revenue.
Sales and
marketing expenses decreased from $1.7 million in Q3 2020 to $1.2
million in Q3 2021. This 30.2% decrease was the result of lower
sales travel, trade shows and cost reductions, partially offset by
higher commissions due to higher revenue.
G&A costs
increased modestly from $1.2 million in Q3 2020 to $1.3 million in
Q3 2021. This was primarily the result of an increase in higher
liability insurance costs and an increase in the reserve for
doubtful accounts. While we have not experienced a significant
customer default, we believe it is prudent to increase our reserves
given some delayed payments we have received.
For the third
quarter of Fiscal 2021, GAAP net income was $773,000 or 12.8% of
revenue versus $272,000 or 5.9% of revenue. Net income to common
Shareholders was $627,000, or $0.03 per common share versus
$125,000 or $0.01 per common share in the same period of Fiscal
2020.
Turning to the
year-to-date numbers, for the nine months ended March 31, 2021,
total revenue was $16.42 million compared to $14.27 million for the
same period of Fiscal 2020. This 15% increase in top line revenue
is due to both subscription revenue and marketplace revenue growth.
Year-to-date recurring revenue growth in the software business was
8%. Marketplace year-to-date growth was 95%.
Cost of
services and product support was $6.7 million and $4.6 million for
the nine months ended March 31, 2021 and 2020 respectively, a 45%
increase. This increase is primarily the result of higher costs
associated to marketplace and the sales of PPE, and to a lesser
extent, cost to boost our IT security, update licensing and other
database systems. While we have experienced a significant increase
in marketplace revenue and cost during the pandemic due to demand
in PPE, it is unclear what level of ongoing marketplace costs we
may experience as the pandemic begins to abate.
Sales and
marketing expenses was $3.6 million and $4.5 million for the nine
months ended March 31, 2021 and 2020, respectively, a 19% decrease.
The decrease is due to a reduction in trade show expense, lower
overall sales and marketing expenses, particularly travel
expense.
G&A expense
was $3.6 million and $3.5 million for the nine months ended March
31, 2021 and 2020, respectively, a 1% increase. G&A expense
increased year-over-year due to an increase in bad debt expense and
higher insurance costs. These increases were partially offset by
lower general overhead due to cost cutting measures and natural
reductions due to our work from home status since April of
2020.
For the nine
months ended March 31, 2021, GAAP net income was $2.95 million
compared to $1.11 million for the same period in Fiscal 2020. This
164% increase in net income is due to an increase in total revenue
and lower SG&A expenses. Year-to-date in Fiscal 2021, net
income to common Shareholders was $2.5 million or $0.13 per common
share compared to $674,000 or $0.03 per common share for the same
period in 2020.
Turning now to
cash flow and cash balances. For Fiscal Year 2021, we generated
cash from operations of $3.4 million compared to $2.3 million in
the prior year period, an increase of 48%. Total cash at March 31,
2021 was $23.2 million compared to $20.3 million at the end of
Fiscal Year 2020, a 14% increase. Total cash at March 31, 2021 was
$23.2 million compared to $17.9 million at the same period in 2020,
an increase of 30%.
With respect to
our stock buyback program, as we said during the height of the
COVID pandemic, we made the prudent decision to halt our buyback
program. In our March 31, 2021 quarter, we decided to recommence
the program. Subject to NASDAQ rules, we purchased 84,000 shares of
common stock for a total of $508,000 during the March 31, 2021
quarter. As our business and its current and future cash flows have
increased their visibility in light of it, the Board has decided to
increase the size of our buyback, moving their commitment from $4
million to now $6 million. We believe our stock, given the
predictability of business, continues to be a very, very good
investment for us.
Thanks,
everyone, for your time today. At this time, I will pass the call
over to Randy. Randy?
Randy Fields
Thanks,
John.
To repeat,
remember that our plan from a couple of years ago included the
following: reduced onetime revenue in our software business, drive
profitability, GAAP profit, not imaginary non-GAAP profits, and
grow cash. Here we are. Virtually no onetime revenue in our
software business, millions in onetime revenue replaced with
recurring revenue and much more cash. The result is improved
visibility as well as strong GAAP profitability and cash
flow.
We've now
reached sufficient scale with a very modest fixed cost base that
clearly positions us for sustainable and growing profitability. You
saw that this quarter as our net income more than doubled, in fact,
nearly tripled on the 30% revenue growth. Now you know our focus,
profitability and cash generation. We're an earnings company
today.
Once again, let
me remind you, we're not a quarterly company. Our trends will be
growth in annual revenue that we can be proud of and simultaneously
much faster growth of earnings and cash flow. The pandemic
continues to impact our business, but perhaps not in the way you
might think. While the sales cycle for our compliance and supply
chain solutions has been elongated, this has been offset by urgent
demand from our marketplace offering as customers struggled to find
hard-to-find products.
While customers
are putting out fires, which is the reason for the elongated sales
cycle, they are certainly well aware of the sourcing and supply
chain challenges that impacted their business over the last year or
so. This is driving increased interest in our SaaS offerings,
including our new out-of-stock solution. They may have to
extinguish fires but they now know more than ever that they do, in
fact, actually need us and our solutions.
We've added
some exciting new modules of functionality. This is the three legs
of our stool. Our marketplace supply chain and compliance offerings
are proven and certainly at scale, although we continue to have
very significant growth opportunities within our existing customer
base, in other words, in most cases, even with an existing product,
we're not yet fully deployed. That means more revenue ahead for
us.
We've added an
out-of-stock solution module of our supply chain offering, which
helps retailers identify shortages and address stocking issues in
advance of their occurring. We've entered the quality management
space with a proprietary smartphone app that enables retail trading
partners to automatically monitor their internal safety quality
record keeping easily, accurately, and frankly,
affordably.
Most recently,
and this is important, we announced the formation of a Food
Traceability Leadership Consortium or as we call it, the FTLC, to
help food retail industry leaders collaborate on the development of
a low cost, easy-to-use food tracing technology. The consortium is
an invitation-only group of food retailers, wholesalers and select
suppliers. The goal is to establish industry standards, best
practices and to develop a technological solution to address the
most recently proposed FDA food traceability
regulations.
Essentially,
we're working with leading companies and thinkers in the industry
to develop a system that achieves the FDA's new proposed
requirement in an economic fashion. This effort could be very
important to the industry and therefore, for us. More about this as
time goes on.
In the
meantime, we have built the largest database of compliant
suppliers. In fact, likely the largest database of food industry
suppliers, period. We've proven our importance to our customers. We
are helping them navigate in these unprecedented times. Our
marketplace solution has helped them secure products from vetted
suppliers when others have been unable to provide products at all,
and our out-of-stock solution has helped many customers keep their
products on the shelf. We are leveraging our leadership position in
each of these areas to add even more capabilities to address the
evolving needs of our customers. The goal, therefore, is to make us
inherently more valuable and important to them. We offer an
end-to-end supply chain solution for our customers, enabling them
to source suppliers, vet suppliers and then transact business all
in one complementary solution. I don't know of another supply chain
company that does all of this.
Now, to that
basic end-to-end supply chain capability and the fact that it's
currently in place, we're going to focus on adding new modules,
think of it as new capabilities, and therefore more revenue per
customer, simple. We're just beginning to approach our customers in
this way. The sales and operational leverage that the strategy
provides is already apparent in our numbers, and way more to
come.
Today, we enjoy
a highly visible SaaS revenue stream, which more than covers our
fixed costs and enables consistent, we call it, structural
profitability, and simultaneously, we have the strongest balance
sheet in our history.
Over the last
three years, we have grown cash at just under a 20% CAGR, while
simultaneously buying back $3 million in stock. We replaced
millions of onetime revenue so that our recurring revenue has grown
from about $13 million to an $18 million annual run rate in that
same period of time. We're certainly very proud of those
accomplishments.
Our focus now
is working to expand our customer relationships and the related and
associated obvious revenue per customer. We're doing it in two
ways. First, by adding additional modules to our existing
applications, more solutions to the same customers, further
integrating this into their operations. The out-of-stock offering
is an example of this. Our quality management services offering is
another example.
Then secondly,
we want to cross sell different application suites increasing the
monthly revenue again from each of our customers and adding
important incremental value. As John said, we penetrated less than
5% of our existing customer base.
In terms of our
successes in our cross selling, we actually have an excellent
example that we can share. One of our largest compliance customers
early this calendar year hired us for our out-of-stock management
system. They actually did that because, in their experience, our
work and compliance management was exemplary. They actually have
touted our capabilities to others.
It was not very
difficult to go from, we're really good at this, to, you ought to
try that, and that's what we did. The result, we're now exceeding
both ours, and more importantly, their expectations of our success
in both compliance management and now supply chain. Wow, home run.
Sales up, out of stock is down by large double digits. Some of the
suppliers participating in this are already talking to us about
taking us to additional retailers, exactly what we want to do more
of.
The interim
marketplace continues to be an important platform during the
pandemic. It remains incredibly hard to find trustworthy,
compliant, vetted suppliers, especially for the things that are in
short supply, like PPE, personal protection equipment, et cetera.
Marketplace has solved many of these challenges, contributing
significant transactional revenue to our top line this quarter.
This contributed to revenue growth for us in the quarter. But as
the pandemic abates and focus returns to our subscription offerings
that we provide, we expect marketplace revenue growth to moderate
and our business will shift back, to a greater extent, on our
recurring software offerings.
But while
that's happening, we would expect our net income to continue to
grow. We've said many times, our profit growth is untethered from
the growth of marketplace. To be sure, we've experienced a
significant increase in our marketplace revenue for PPE during the
height of COVID-19, but it's certainly unclear what level of
marketplace demand for PPE, et cetera, we may experience as the
pandemic abates.
The industry
dynamics that serve us long term, secular catalysts for us, have
not changed at all. If anything, they've been reinforced. Consumers
are far more concerned with problems that our supply chain business
solves, such as out-of-stocks. Simultaneously, the FDA is moving
deeper into regulating the flow of good food, now mandating track
and trace for the first time. These are both right in our
wheelhouse.
Our annual run
rate of recurring revenue is, we believe, going to grow within our
targeted range of 10% to 20% this year, and our expected exit rate
this June nearly locks in our growth goal for next year. As we look
out, we feel very comfortable with the growth in revenue and even
faster growth in the bottom line that we can see.
In summary,
we're in an excellent position with very strong recurring revenue,
synergistic transactional revenue, consistent profitability and a
strong balance sheet. We expect to be able to grow our top line
while expanding our bottom line at a more rapid rate. We will
generate sufficient cash to both add to our balance sheet and
continue our stock buyback program. The job of replacing millions
in onetime revenue with recurring revenue is complete. We’ve
virtually no onetime revenue in our software business as of now.
The growth rate of recurring that replaced the onetime revenue
remains, so that we anticipate being a much larger company over the
next few years.
As John
discussed, a key component of our shift to recurring revenue is
greater predictability. Our Shareholders asked us for greater
visibility into our results and expressed the desire to more
effectively model our business. As Managers, we also wanted more
predictability. We're now there. Our business is now dominated by
our recurring revenue stream and provides annual line of sight to
our results.
Today, we have
a run rate of about $18 million of recurring revenue, up from $13
million just a few years ago. This is a baseline. As we begin
Fiscal 2022 in July of this year with recurring revenue of $18
million, we expect to grow our recurring revenue by 10% to 20% each
year compounded. Our cash expenses are about $12 million annually,
increasing slightly as we grow due to higher sales and marketing
costs like commissions, et cetera.
It's fair to
think of an $18 million recurring revenue business growing at 10%
per year compounded rate that has a relatively fixed cost
structure, cash base of about $12 million. As John mentioned, 80%
of the revenue over that fixed cost base becomes income and cash.
Now you can run your own numbers. Going forward, some quarters will
be above this trend, some below, some costs will be lumpy. But year
in and year out, this is our goal, grow our top line at this
predictable rate, grow our bottom line at a much faster rate, drive
cash.
We hope and we
believe the market will reward us for this predictable earnings
growth rate. Shareholders expressed the desire to more effectively
model this and have better line of sight. Now you have it. Our
model is now very simple, very straightforward and frankly, very
compelling. You can see that in the numbers we reported
today.
With that, I'd
like to now open up the call for questions. Operator?
Operator
The first
question comes from Tom Forte with D.A. Davidson. Please go
ahead.
Tom Forte
Great,
thanks.
Randy and John,
I have three questions, one at a time. The first question I have is
you talked about still facing an elongated sales cycle. I wanted to
know if there's a difference as far as the current state of your
customer distraction in U.S. markets that have reopened faster,
such as Florida and Texas versus the rest of the U.S.?
Randy Fields
Well, that's an
interesting question. What we're seeing so far is that the industry
is just waking up. In other words, without any geographical
limitations, we are seeing more interest, more conversations. It's
not fair to say things are back to normal, whatever that is from 18
months ago. But it is fair to say that it's easier to get to
people, we're more deeply engaged, more projects are looking like
they're getting scheduled and now it's showing up in our
revenues.
I don't think
we can say with any certitude that it's a function of the states
that are opening up so much as remember, supermarkets have been
open and doing incredible business really for the last period of
time during COVID. It's just that they were distracted trying to
keep product on the shelf.
Second
question?
Tom Forte
My second
question, so I wanted to talk about your build versus buy strategy
as it pertains to products and services you're offering and
potential M&A, including geographic expansion.
Randy Fields
Okay, another
good question. As a rule, we prefer to build things because we have
a proprietary development environment and a fabulous team of
people, world class, that have been with us for many, many years.
It's pretty easy for us to add to our existing platform additional
functionality. Overall, we're inclined to do it. However, we
are—and our cash position allows us to be interested in
M&A activity.
We do look at
those things that are presented to us. The most interesting
opportunities are companies that are likely in a different
industry, not retail food than we are in, so we could take our
platform with people who are experienced into other vertical
markets. Absolutely, we do look at M&A, but there's nothing
that is hot at the moment.
Tom Forte
Excellent,
third and final question, Randy. When I think about your now steady
revenue and your cash flow generation, I'm curious what your
thoughts are on potentially considering a private equity
sell—selling to a private equity firm?
Randy Fields
Another
interesting question. I think it's fair to say and for reasons
we're not sure of, we've had a number of inquiries from interested
parties in the last few months. We have an obligation to examine
those all seriously. Obviously, if there's ever a need for us to
make a regulatory disclosure, because of the status of a possible
transaction, we certainly will. We think the stock is attractive.
That's why we're expanding our buyback.
It's probably
not terribly surprising that others are finding us attractive at
the moment. I don't have any news per se. But yes, I think it's
fair to say we've attracted a reasonable amount of interest at this
stage.
Tom Forte
Great, Randy
and John, thanks for the great questions.
Randy Fields
Okay, thank you.
Operator
Thanks, Tom.
This concludes our question-and-answer session. I would like to
turn the conference back over to Randy Fields for any closing
remarks.
Randy Fields
Well, we
appreciate everybody taking the time this afternoon. We've worked
hard to create a Company that is, I think, easier to understand and
certainly easier to forecast. From where we are, things feel very,
very good. We like the fact that we've created a structurally
profitable business given our relatively small size. We've been
very successful with our customer set and feel that the next
several years, we're going to grow into the kind of Company from a
size perspective that all of us would like to have.
Again, we're
ready anytime to answer questions, and we appreciate you taking the
time this afternoon. Thank you.
Operator
The conference
has now concluded. Thank you for attending today's presentation.
You may now disconnect.