Blueprint
Exhibit
99.1
C O R P O R A T E P A R T I C I P A N T
S
Rob Fink, Hayden IR
Todd Mitchell, Chief Financial
Officer
Randy Fields, 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
Thomas Forte, DA
Davidson
Ananda Baruah, Loop
Capital
P R E S E N T A T I O N
Operator:
Good
day everyone. Welcome to today’s Park City Group Fiscal 2019
Third Quarter Earnings Call. At this time, all participants are in
a listen-only mode. Later you will have the opportunity to ask
questions during a Q&A session. You may register to ask a
question at any time by the pressing the star, then one on your
touchtone phone, and you may withdraw yourself from the question
queue by pressing the pound key. Please not today’s call is
being recorded and I will be standing by should you need any
assistance.
It is
now my pleasure to turn the conference over to Rob Fink of Hayden
IR. Please go ahead.
Rob Fink:
Thank
you operator and good afternoon everyone. Thank you for joining us
today for Park City Group’s Fiscal 2019 Third Quarter
Earnings call. Hosting the call are Mr. Randy Fields, Park City
Group, CEO and Chairman, and Todd Mitchell, Park City Group,
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 and
are subject to risks and uncertainties which could cause actual
results to differ from 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
risk. Park City Group does not assume any obligation to update
information contained in this conference call.
Shortly
after the market closed today, the Company issued a press release
over viewing the financial result that I will discuss on today's
call. Investors can visit the Investor Relations section of the
Company's website at parkcitygroup.com to access this news
release.
In
addition, in our earnings release and on this call, we may refer to
GAAP and non-GAAP financial results including free cash flow,
EBITDA, Adjusted EBITDA and adjusted earnings per share which are
non-GAAP term. We believe these non-GAAP terms are useful measures
for the Company primarily because of the significant non-cash
charges in its operating statement. Reconciliations of GAAP and
non-GAAP results are in the earnings release on the Investor
Relations website.
With
all that said, I'd now like to turn the call over to Todd. Todd,
the call is yours.
Todd Mitchell:
Thank
you Rob. Good afternoon everybody. I want to begin by talking a
little bit about our business model, and how we think about value
creation. We define our business in terms of a network of
connections between buyers and suppliers. Each of these connections
represents an economic exchange between these two parties, which we
are sitting in the middle of, and which we have the potential to
monetize.
We have
talked about this. We refer to growing our network in terms of
scale; or growing the number of connections in our network, and
scope; or growing the number of ways we can monetize these
connections. These are the metrics of value creation for us, and
they are the way that we measure our success.
Over
the last few years, we have been focused on growing the scale of
our network. Our compliance solution has been the primarily driver
of scale because of the number of connections it provides us. I am
pleased to say we now have over 84,000 compliance connections, up
from 6,500 three years ago. But, we have also been just as intent,
on driving our Supply Chain connections. As a result, we now have
342,000 total connections across all of our applications, and
growth and supply chain connections is actually accelerating, and
we have done this while never shifting our focus away from our
customer’s success, and growing the profitability of our
business.
Many of
you have asked us why revenue growth is not tracked with connection
growth. Frankly, this is because our connection growth has
proliferated, it has come with us driving our services deeper into
the supply chain to smaller suppliers. And, as our services are
loosely priced based on the value of the economic exchange between
the buyer and the seller, this has put downward pressure on our
ASPs.
This is
not something that concerns us. We view all connections as a
strategic. We want to be in the middle of the economic exchange
between every buyer and every seller in the supply chain, because,
while we have been driving the scale of our network, we have also
been developing capabilities that will increase the scope of what
we do across our network, and most of these new capabilities have a
much higher ASP than the applications with which we are
establishing the initial connections.
This is
what MarketPlace is all about. MarketPlace not only changes the
dynamic of our relationships with the suppliers in our network by
transitioning us from a mandated service they have no choice but to
pay for, to a service they want to pay for because it generates
incremental revenue for them, the amount we can charge for
generating this incremental revenue, as a percentage of that
revenue, or the economic value of the connection between the buyer
and the supplier, is a multiple of what we can charge for our
mandated services. Therefore, we believe it will ultimately drive a
significant increase in our ASPs, and when this happens across the
network of our scale, it will drive a significant increase in
overall revenue.
This is
what you need to think about when thinking about how to value our
Company, rather than current revenue or current earnings. How big
is the network we can create? With literally hundreds of thousands
of participants in the U.S. supply chain for food, we see the
potential for literally millions of connections.
How
much revenue can we generate per connection? As I just mentioned,
with the application set we have already developed, we see the
potential for ASPs to be a multiple of their current levels.
Moreover, by having an end-to-end solution for buyers, which helps
a retailer or a wholesaler manage their relationships with their
suppliers across the entire workflow of the supply chain from
sourcing, to vetting, and then transacting with these suppliers
efficiently, we have created a sustainable, and highly defensive,
self-reinforcing ecosystem, where in the use of one of our
applications leads to the use of another, and each application
enhances the value of the other. In in other words, ASP will rise
organically.
And
finally, how much profit can we generate from this activity? With
our superior initial acquisition model and our applications all
sitting on a single technology platform, with a single customer
interface, and a single sales relation, we think this enterprise
will be structurally very profitable, and generate significant
amounts of cash flow, for tremendous value creation and returns to
our shareholders.
Now
let’s look at the numbers for the quarter. Revenue, Fiscal 3Q
revenue was $5 million, down modestly from $5.3 million a year ago.
Revenue for the quarter was held back by our focus on implementing
new use cases for MarketPlace, which also resulted in MarketPlace
revenues being down year-over-year in the quarter. It is taking a
little longer for MarketPlace revenues to scale than we expected.
This is largely due to our own decision to resequence the rollout
of use cases. Specifically, to move ahead more aggressively with
Similar Supplier and to hold back on some of the seasonal non-core
category programs we had emphasized in prior quarters.
Nevertheless, underlying trends were more positive than they might
appear at first glance. Recurring revenue for both supply chain and
compliance was up in the quarter, and revenue for the fiscal
year-to-date was up 5% to $16.5 million from $15.7 million a year
ago.
For the
quarter, where I would instead have you focus is profitability and
cash flow. First, net income. We generated net income in fiscal 3Q
of $921,000, or $0.05 per share, up nearly threefold from $311,000,
or $0.02 per share a year ago. This brought fiscal year-to-date net
income to $3.3 million, or $0.16 per share, nearly doubling from
$1.7 million, or $0.08 per share in the comparable period last
fiscal year.
Second,
cash flow. Operating cash flow for the quarter was a record $1.65
million, up from $406,000 a year ago. As a result, free cash flow
was $3.4 million fiscal year to date, more than doubling from $1.5
million in the comparable period a year ago. With this strong cash
flow, we ended the quarter with a record $18.1 million in total
cash, up from $14.8 million a year ago, and $14.9 million at the
end of Fiscal 2018.
These
results show the benefit of our converged business plan. We are the
only one that can offer an end-to-end solution across the entire
workflow of the supply chain. As I said, our solution is on a
single technology platform, a single customer interface and has a
single sales relationship. Not only does this enhance our ability
to provide excellent execution, it also creates tremendous amounts
of operating leverage with regards to scaling our
business.
Let’s
look at the expense numbers in a little bit more detail. Cost of
services. Cost of service fell 26% to $1.3 million in Fiscal 3Q
from $1.8 million a year ago. This translates to a gross margin of
73%. This decrease was primarily due to lower expenses associated
with MarketPlace.
Sales
and marketing. Sales and marketing fell 6% to $1.5 million in
Fiscal 3Q from $1.6 million a year ago. This reduction was due cost
savings associated with transitioning to our new Success Team
model. Specifically, as the Success Team takes on a larger role, we
have been able to shed expenses associated with our legacy sales
model.
G&A.
G&A fell 21% to $1.0 million in Fiscal 3Q from $1.3 million a
year ago. This decrease was due to lower administrative costs and
lower third-party consulting fees.
With
all of our operating cost components down year over year, total
operating expenses fell 18% in Fiscal 3Q to $4.0 million from $4.8
million a year ago. This translated to a GAAP operating margin in
excess of 20%, up from 8% in the same quarter a year ago. I would
also highlight, that below the line we are seeing some benefits
from our growing cash balance and higher yields on that growing
cash balance
A final
note on cash and cash flow. I want to highlight that the Board has
decided to authorize a $4 million share buyback program. Remember,
as we have always said, balance sheet strength is important to our
customers. As such, we continue to grow our cash balance, even as
we execute this buyback program, which should give you an idea of
how we view the strength of the Company’s capacity to
generate positive cash flow going forward
I am
going to pass the call off to Randy to talk more about some of our
operating initiatives.
Randy Fields:
Thank
you. I want frame my comments in the context of those Todd made
about how we view value creation. We are building a network of
connections between buyers and suppliers. It is now the largest
network of its kind in the world. The network is defined by its
scale, how many connections we have in our network; and the network
is also defined by its scope, how many applications we sell per
connection.
Our
revenue is a function of those two measures. As such, MarketPlace
is potentially the most significant product launch in the
Company’s history. It is that because of its ability to
increase the scope of our engagement across the entire network and
importantly, do this with very little additional
touch.
Over
the last few years, we have been primarily focused and extremely
successful in our view at driving the scale of our network. We now
have 84,000 compliance connections, and 342,000 total
connections.
And as
we announced today, we have signed a very important partnership to
make ReposiTrak the preferred food safety compliance platform in
the U.K., thus expanding the scale of our network overseas. In
fact, we expect that this will become revenue producing quite
soon.
The
growth in the scale of our network has obviously been the driver of
our profitability, and generated the cash flow that we needed to
build out the full platform. Before MarketPlace, our approach to
developing this platform was sequential; we let our customers
dictate the pace of product adoption. We simply could not go back
to our customers every single quarter with a shiny new object. They
had to be ready and satisfied with the application they were using
before they would listen to our new idea.
MarketPlace
will, we believe, give us the ability to break out of this
sequential nature of our customer constrained growth. The use of
MarketPlace, if we are correct, will happen organically without the
need for our account managers’ involvement in each additional
transaction. So, as MarketPlace evolves, our revenues will be able
to grow with much less dependence on the level of touch we have
provided to our customer up until this point in time.
This
year we have been preparing to drive the scope of what we do across
our network. In fact, in the third quarter, we accomplished a lot.
Specifically, we substantially reorganized the sales teams. We
completed the move to a larger facility. We increased the capacity
of our data center significantly. And, most importantly, we
launched the third use case for MarketPlace. This third use case
for MarketPlace is an application that we call Similar Supplier and
it warrants more commentary.
Before
I talk about Similar Supplier, let me recap MarketPlace’s use
cases for you: Our first use case was sourcing products for
retailers for non-core categories. It was actually conceived by one
of our largest customers, and has not only worked, the customer
loves it and continues to use it. We shifted resource away from
this use case last quarter in order to launch Similar Supplier, but
we will come back to it as our focus allows.
Our
second use case is sourcing products to retailers when an existing
supplier can’t provide adequate product. We’ve got this
use case up and running in the second quarter. In fact, it is
working well that we are getting follow-on orders and expansion
from the first customer. We will also expand this application as
focus allows.
As I
mentioned, we launched our third and most important use case,
Similar Supplier last quarter. Similar Supplier enables our
retailer and wholesaler HUBs to use MarketPlace to search for
replacement vendors from our entire database of Compliant
Suppliers. Interestingly, this is the original use case for which
we developed MarketPlace because of how neatly it complements our
compliance solution. It makes our compliance service even more
compelling.
I also
want to explain why Similar Supplier had to be launched at scale,
why it couldn’t have been phased in over time, so we could
focus more on net new customers. Simply put, our customers said
that there was not any point in launching Similar Supplier if it
did not have a critical mass of suppliers to search from. By
definition, buyers need sellers. You only have one chance to make a
good first impression. As such, it was critically important that
when we launched Similar Supplier, that virtually every search by a
buyer resulted in multiple supplier options.
Getting
Similar Supplier to scale required the focus of everyone on the
team. Our development team had to rollout sophisticated search
capabilities. Our Customer Success Team had to reach out to
literally thousands of suppliers to help them add supplementary
data about the products they sell.
In
refocusing though, we achieved truly an astounding success. We
enrolled over 20,000 category participants in Similar Supplier, up
from a few hundred at the beginning of the quarter. This
resequencing of priorities resulted in the scaling of
MarketPlace’s other use cases being pushed out a little and
our revenue for the quarter being a little lower than we would have
liked. But this was a necessary and temporary disruption, and it
positions us uniquely going forward. We will soon begin to
capitalize on this success.
Remember,
when we started ReposiTrak by way of comparison, it was years
before we had 20,000 connections, and by comparison, we scaled to
20,000 participations for Similar Supplier in less than three
months. We think this will prove to be a transformative change for
our MarketPlace. We now have the largest database linking Compliant
Suppliers and their products, allowing our HUBs to search for a
Compliant Supplier for virtually anything that they
sell.
I also
want to emphasize that the monetization model for Similar Supplier
is still being explored and tested. We have a range of options and
we will likely end up with a mix of revenue producing programs.
What are they? One is an advertising-based model. With this, we
actually have several variants. Suppliers might pay us a fee to be
certified as ReposiTrak compliant. Suppliers might pay to be given
preferential placement in our search results, sort of Google like,
and suppliers might actually run ads on our search
pages.
Another
option we are trying is a revenue share program. In this case, we
would receive a portion of the revenue for commerce that we
facilitate by introducing a replacement supplier to a retailer. We
have already put a number of these agreements in place, and
obviously, this method would, if successful, by far be the largest
revenue driver for us. In fact, just as an interesting side note,
one of our suppliers is in the process of potentially doing
business with two new retailers and nearly 2,300 stores added to
his footprint, we facilitated this. He is trilled, so are
we.
A third
option, Similar Supplier might actually be used as a driver for
cross selling activity. We are exploring offering preferential
search placement to suppliers that use our compliance solution to
become Tier 2 Supplier HUBs. So, lots of options. Over the next
four to six quarters, we will evaluate each of these options and
determine the optimal path forward, while we continue to generate
tremendous profitability and cash flow from our core
business.
This
weekend I came across a much better way to express our strategy
than I have been able to articulate in the past. It is is a quote
from Warren Buffet from the Berkshire Hathaway shareholder meeting
last week. Here is it.
“So,
we think in terms of that moat and the ability to keep its width
and its impossibility of being crossed as the primary criterion of
a great business, and we tell our managers we want the moat widened
every year. That doesn't necessarily mean the profit will be more
this year than it was last year because it won't be sometimes.
However, if the moat is widened every year, the business will do
very well“.
This
has actually been our focus: building moats around our business to
protect us and to differentiate us from what historically has been
a competitive space. We have built this moat by looking at where we
were within the context of our customers’ work flow across
the supply chain and launching a solution that was immediately
antecedent to that activity.
So, for
example, compliance was the moat we built around our supply chain
business because we recognized that before a buyer could transact
efficiently with a supplier, they needed to vet the supplier, and
MarketPlace is the moat around the compliance business because we
recognized before a buyer could vet a potential supplier, they
actually needed to find it. What better way to help our customers
do this than by giving them a way to find new suppliers that were
pre-vetted by our compliance solution.
Simply
put, we now have a moat around our business that lets us build out
the scale and scope of our network of buyers and suppliers in a
strategic and deliberate manner, all the while generating very
strong profits and cash flow. MarketPlace is the crowning
achievement in our view of the strategy, but we are still very
early on.
Let me
summarize, we told you MarketPlace would be significant, and it is.
It has generated more revenue for us than any prior product launch
in our history in the same period of time. We are still early in
the process and we have plenty of obstacles that lie ahead but
we’re quite optimistic.
We said
we would add two new buyers before fiscal year end and we have
exceeded that goal. We now have six buyers in MarketPlace, two of
which are new customers for us. Importantly, we now believe
MarketPlace will actually continue to attract new customers and
therefore actually drive in our sense what we call the scale of the
network.
We said
we would explore various use cases and we have. We introduced three
new use cases and we did all this while tripling our
profitability.
We said
MarketPlace would add variability to our quarterly revenue, and it
has, and this is a function of the transactional nature of the
business. This will continue to be the case until
MarketPlace’s adoption scales and it begins to diversify its
own revenue contribution to the Company.
Over
the next few quarters we will continue to drive MarketPlace
forward, and because we have such a strong moat around our
business, we are quite confident. We will do this in a strategic
and deliberate manner so that we maximize each component and
continue to generate those profits to cash flow.
To
judge our progress in Fiscal 2020, I would have you look at some of
these things as measure. First, we will increase the number of
participation in he marketplace. By the end of Fiscal 2020, we
would expect to have a dozen or more buyers using MarketPlace, up
from just a handful today.
Secondly,
we will see increased cross selling and deeper penetration of
existing services. By the end of fiscal 2020, we expect to see an
increase in the revenue per existing connection. As Fiscal 2020
develops, much of our emphasis will be on expanding our footprint
with our current customers. It is important to note by the way that
our Company could literally double in size over the next few years
by expanding our existing customers use of our services. We will be
focused on doing just that.
Third,
we will introduce some new monetization models for MarketPlace.
Right now, as I mentioned, we are still exploring monetization
models, but by the end of 2020, we will have evaluated various
monetization ideas, and we should have a clear path forward for how
we will generate profitable revenue from all of the use cases we
end up supporting.
We will
also prioritize use cases of MarketPlace by the opportunity each
one presents. Now, for the short term, we actually expect to see
now an acceleration of our supply chain business, including a
relationship that is new to us with one of the largest footprint
retailers in the U.S. We expect that to be significantly revenue
producing over the next several year. As we look to 2020, overall
we expect our goal will be to drive the network scale to over
400,000 connections from its current 340,000, a large growth in a
single year but we are quite optimistic that it is possible for us
to accomplish.
But,
through the strategic and deliberate execution of our strategy, we
will continue to expand both the scale and the scope of the network
of suppliers, accelerate revenue growth, all the while generating
significant profitability and cash flow, and that in turn we are
sure will enhance shareholder value.
Okay.
So now, I guess we are open to some questions.
Operator:
At this
time, if you would like to ask a question, please press star, then
one on your touchtone phone. You may withdraw yourself from the
question queue at any time by pressing the pound key. Once again,
star, then one if you'd like to ask a question.
Our
first question comes from Thomas Forte with DA Davidson. Please go
ahead. Your line is open.
Thomas Forte:
Great.
Thanks for my question. So I've two. Randy, you've talked in the
past or we've talked in the past about the fear of Amazon and how
that's inspiring food retailers and retailers in general to more
warmly embrace technology, and how that might be a catalyst for
your sales. In the last quarter, they had their third significant
price reduction at Whole Foods. So, I wanted your updated thoughts
on that.
Then
second if you could circle back on marketplace, I think you made a
comment about changing your strategy so you'll be less impacted on
a near-term basis based on seasonality. Can you go through that one
more time for me please? Thank you.
Randy Fields:
Okay.
Just a voice test because I had to change phones. Can you hear me
okay Tom?
Thomas Forte:
Absolutely.
Yes.
Randy Fields:
Okay.
Let's see. In reverse order let me go to your first question.
Amazon is not so much through Whole Foods, but Amazon's existence
is fundamentally changing that view that people have of technology.
Let me tell you where we currently see the pressure and we're
responding to it, and actually the market response to what we're
doing is pretty exciting.
The
advantage that Amazon has is in-stock, meaning that if you go to a
typical supermarket today, you're going to find anywhere from 8% to
15% out-of-stocks. It hasn't improved in the last decade. But the
advantage that Amazon has is, if you're a shopper there, and I
suspect you are, the fact is rarely do they have an out-of-stock,
and now as they move to next-day-delivery, the concept of
out-of-stock is going to become more important. Well, a major piece
of what we do in our supply chain business is to help supermarkets
identify looming, looming meaning coming out of stocks, where they
don't have enough on the shelf given the forecasted demand. Our
specialty has been in the direct store delivery area, and nicely
enough, we've retooled what we're doing. There's really new
marketing messages and our our account management staff is now
aggressively contacting our accounts and working with them on our
out-of-stock stuff. We expect that this is going to give a nice
shot in the arm to our supply chain business, and our current view
in the current quarter is that supply chain is going to have an
excellent quarter. It is resourced differently than marketplace and
compliance, so we can put the accelerator on there a little bit
without impacting the rest of what we're doing. So Amazon is having
a pretty extensive impact across the industry, but honestly it's
not true Whole Foods. Whole Foods seems to have received it from
people's minds in terms of the Amazon competitive
threat.
They
have however, and this is important, Amazon has announced that it
intends to get deeper into brick and mortar retailing of groceries,
and it may intend, as it's suggested, buying some small regional
chains around the country, not to add to Whole Foods, but an
entirely different retail idea. If they do that, obviously there is
no way of knowing what the impact is, but I suspect that may be a
bigger threat and galvanize the industry more than the Whole Foods
acquisition did. Does that give you what you were looking for in
Whole Foods? It's not pricing at Whole Foods that causes people
concern. That's not an issue?
Thomas Forte:
Yes.
Thank you.
Randy Fields:
Okay.
Then from a marketplace and seasonal, the so-called first use case
that we have, which is working with retailers, with store-level
ordering, promotional items, seasonal items, new items, etc., is
highly dependent on seasonality, weather, or things like that, but
that's why people use us. So, it's a very interesting use case and
only at scale with many users will it cease to be as transactional,
impactful quarter to quarter as it is today. We did shift resource
from that particular use case last quarter and moved it to what we
think is the most important use case, which is what we're calling
similar supplier.
The
second use case, by the way, is becoming more interesting, which is
the one we mentioned last quarter where one of our current
customers that was not a customer at the time came to us and said,
"We've got a product that is now sold out. Our current supplier
can't help us. Can you help?" and literally, because of what we
know about suppliers and their compliance and their abilities, we
were in touch with nearly 60, 6-0 suppliers of that product. They
came back to us after we found the emergency product for them, if
you will, and now they've allowed us, and I think we're just about
complete with the order, they're going to have us be, in essence,
their supplier for all of that product next year. So, one small
success led to an expansion of the relationship, and we think that
this is, again, an interesting niche for us to fill. To be clear,
we never think about marketplace being a mainline marketplace.
They're not going to buy Kraft's macaroni and cheese inside our
market. That's not the idea. We will always be the replacement
vendor, the add-on vendor, the new idea. We will always operate at
the periphery of any given retailer's business.
On the
other hand, we think that the potential in that is enormous and
that's why we're devoting as much time, which is the scarce
resource we have, time and focus on the activity. I think we
mentioned, and here's the numbers to imagine. Now that we're at
call it 84,000 facility level kinds of connections, here's what we
can say definitively. Something around 15% to 30%, and we usually
say 20% to 25% to narrow the range, 20% to 25% of the vendors
choose or cannot become compliant. So what we think is, over time
those vendors have to be replaced. This is an industry with a spend
of around $700 billion a year. Even though many of those vendors
are the smaller vendors, that spend is still likely somewhere in
the 10% area. So, that means something around $70 billion of spend
is going to have to go from the incumbent suppliers that are
non-compliant to a group of suppliers that are more compliant. We
are targeting ourselves to be right in the middle of that shift.
So, we recognize that we're putting a lot of focus and energy on
getting this part of our marketplace up and running. It's a
tremendous adjunct to what we're doing for our compliance
management business in and of itself because we're creating this
problem of showing people the bad actors. But, we think even if
it's not week-to-week or month-to-month, that this is the right
place for us to focus and should result ultimately in a much larger
business. Was that the answer, Tom?
Thomas Forte:
Yes,
thank you, Randy.
Randy Fields:
Got it.
Thank you.
Operator:
Thank
you. Our next question comes from Ananda Baruah, with Loop Capital.
Please go ahead, your line is open.
Ananda Baruah:
Hi,
good afternoon guys. Thanks for taking the question and thanks for
all the details so far. It's really helpful. If I could, just Randy
quickly, could you go back to the sales force reorganization and
just walk us through in a detailed fashion what the thinking behind
it is. I know there were some comments in the press release, you
made the comments on the call but, a little bit of the deeper
thinking and then talk about specifically what was accomplished so
far and what remains to be done, and then I have a couple of more,
thanks.
Randy Fields:
Okay.
So we actually have a more complex business than it probably
appears at the surface. When we describe that then you'll see how
we've organized ourselves to I think put ourselves in the middle of
the customer flow. At the end of the day, we have customers who are
retailers and wholesalers on the one hand and suppliers on the
other. Each of them is touched by one or more of our products. Our
core belief is that every customer has to have a single
point-of-contact into our business. That's almost an inviolate
principle that, if we have multiple people inside our Company
calling to a customer, each one is showing him the shiny new object
this week, we will make our customers crazy. They're busy, they're
sequential in nature, they're risk averse, they're slow. That's the
characteristic of the industry. They want one throat to choke as
they say. They want one person to talk to for everything that we do
for them.
So, we
now have three different organizations. One organization touches
the suppliers when they only do compliance with us. We call that
group the success team. We have another group of people that only
deal with hubs, meaning, retailers, wholesalers or even suppliers
that use us with their supply chain for any activity. So, it could
be a hub that does game-based trading with us and its suppliers do
scan based trading or replenishment etc. There could also be a hub
managed by that group of account managers as we call them that just
does compliance. Now we have yet a third group of people that we
call partners who are responsible for expanding our footprint with
our existing customers and bringing in net new names. It's the
first time we've been organized that way and each of those teams
now has clear responsibility without bugging customers and making
them crazy. So, it should have a pretty salutary impact on what we
do. Once it's fully—it is not fully operational yet. It's
only been re-orgd in the last four to six weeks but it's coming
along nicely.
Ananda Baruah:
Got it.
That's super helpful. I guess, just in your guys view, you
mentioned that this is my term but I guess friction or impact in
the March quarter from the re-org. Do you believe that impact, the
friction can be resolved during the June quarter or is the tail
longer than that? Or could the tail be longer than
that?
Randy Fields:
Well,
the truth of the matter is that getting 20,000 participations at
the category level, I mean, I just like everybody to please think,
holy moly, you started out with a few 100 and a few months later
you have 20,000 participations. That was herculean in terms of
effort. Everybody was scrambling to get it done. It's made us
extremely proud of the effort. So, we did the re-org at the same
time that we were doing that. So it was all hands on deck. Even
yours truly was helping to move that mountain because it was
gigantic. On the other hand, the feedback so far from the one or
two beta users of similar suppliers search are astounded. I mean,
one, this just happened. One of the largest retailers in the U.S.
in the top five was a customer of ours. Was looking for private
label pasta. These guys are very sophisticated. It's one of the
largest and they came to us and said, "What have you got in your
system?" And we gave them a list of names for private label pasta.
The buyer was astounded. He said, "my God". He said, "I've done a
huge amount of research in this category". He said, "I've used
Google, I've used every source I could find and there's at least
four names on this list that I never would've thought of. This is
tremendous". So that's the kind of response that we're looking for
where a buyer can go in and get more options from an alternative or
new vendor if you will than the otherwise could get. So we're not
at the end of—remember we're still putting a lot of focus on
this. We've got to bring buyers in, get them used to using it. Beta
kinds of buyers for now and there's no monetization in place. We're
experimenting with monetization. So we recognized a lot of our
focus will be on marketplace and over the very short term, it will
not produce much incremental revenue.
However,
it is our future. We need to get to the point that we can make a
decision that marketplace is just an add-on to compliance or it
becomes the center of our plate, and we need to get to where we
know as quickly as we can. So, there's probably a longer tail than
the first part of this quarter as we get the re-org going but
they're starting to come together and coalesce with going out to
our existing customers. A big piece of our focus as I said for the
next year, is expanding the footprint of our existing customers,
and I expect that they'll have some salutary impact, call that
cross-selling is really what the term should be. I think we'll
start to see some impact even in this quarter from that
activity.
Ananda Baruah:
That's
really helpful. I'm going to just ask one more and then I'll cede
the floor for now. So just dovetailing off of that Randy, what can
you tell us about how we should think about revenue cadence in the
coming quarters? Maybe not through Fiscal 2020 but maybe through
calendar 2019?
Randy Fields:
Thank
you. Good questions. I love questions that don't have to do with
how's this month going. As we now re-org the sales force, as we
begin to move this particular use case of similar supplier to the
market, meaning, getting four or five or six actual users, that's
going to take us a few months. Then we're going to have to come
back and test the monetization ideas. So, that probably puts us in
the first quarter of 2020. That ought to begin to have a little bit
of impact. That also begins to free up resource to go back to the
other use cases in marketplace. So, I would expect that the balance
of this calendar year as opposed to fiscal year, we'll see
certainly positive trends and certainly more positive trends than
what we've seen in the last couple of quarters internally. So, the
outlook is good but we can't get our eyes off getting marketplace
into the center of the plate. Except that, it's one that when we
started that I think I said just like compliance that will either
be a big deal or nothing. It increasingly looks like it's going to
be a big deal but we've got to do the experimentation on
monetization and I hope somebody will ask me a question about that
because there's so many options of doing that. But, it will begin
to make an impact sometimes in the course of this calendar year as
opposed to fiscal year.
Ananda Baruah:
Got it.
It sounds like you're saying supply chain, you expect at least to
have sounds like a strong June quarter.
Randy Fields:
Yes.
Ananda Baruah:
Then so
for compliance I guess just for the balance of the business, should
we think about it a little—I'm just trying to think about the
seasonal trends. June quarter from March and the September quarter
from June off of the March results. Should we think of, sounds like
supply chain give you a little advantage and typical seasonal
causes a little bit of a lift there. Should we think of compliance
as being seasonal as well?
Randy Fields:
It's
not--yes. In the case of compliance, it's less the seasonalities
than the focus. Remember it's the same team that does the
marketplace activity and the compliance activity. So, as we can
free up their resource, we can begin to bring new expansions into
the fold, if you will, of compliance. The area that concerns me the
most and we haven't cracked the code the way I would like to
because we had to push it off to the side, but we're coming back to
now, is we want to rapidly increase the cadence of our tier two
sign-ups. I'm not satisfied with how we're doing there. We've got
lots of focus on that right now. It's probably the number two focus
in the business, these tier two hubs. Remember they're small, they
don't make a big financial impact in any given quarter. But, it is
our future and we expect over the next several years to sign up not
just a hundreds, but potentially thousands of people. So we've got
to get the cadence moving.
What's
the way to scale it up massively from where we are? That's probably
my second biggest focus. So, it's actually starting to work. The
last week has been really interesting as we've been able to shift a
little bit of resource to it. A lot of attention from senior
management on it. So, by the third quarter of the calendar year;
first-quarter of our next fiscal year, I want to see a big
improvement in what we're doing in our tier two hubs. So, I think
we're pretty close to cracking the code. And I hope to have some
fun reports about that in our next call.
Ananda Baruah:
That
helpful context. I want one more follow up to that point and then
they will get off here. So would you be comfortable with flattish
revenue for the June quarter off of March and then you begin to get
a little bit of lift in the second half of the year calendar is
safe from tier two maybe in September and then from more
marketplace in the December quarter? Is that a fair way to think
about it?
Randy Fields:
Sounds
like you're asking you for guidance. Well, the answer
is…
Ananda Baruah:
(Inaudible)
Randy Fields:
I know.
I think the answer is we're going to the very best that we can
without in any way impacting our customers' success and I'm not
just using words here. But, if we can get enough resource to go
back to the other use cases of marketplace, then we'll have a
significant impact on the quarter from marketplace. Otherwise that
impact won't happen until the third quarter. We're trying to play
the long game here. We're trying to make absolutely sure that what
we're doing can be well-executed. So, I don't know that we have a
flattish or positive view of the quarter. It's not so much that as
the execution of what we're doing. So I'm not being very helpful,
but it's not because I don't want be.
Ananda Baruah:
Got it.
That is helpful. I appreciate it.
Randy Fields:
Well,
let me make an interesting point, because we always are surprised
at what we do when we haven't done it before. When we said about,
when our customers said to us, it's not quite point blank, but when
we showed them similar supplier. Somebody that had senior
experience said something to us that was pretty interesting. They
said years ago a company called Ariba that was ultimately purchased
by SAP attempted to have a marketplace different than ours, but
still a marketplace. They said what happened was that they brought
buyers to the table first. The buyers would go in and look for
something call it household cleaning supplies. Every search they
did came back empty. So, they would try searching a couple of times
or three times they went, "To hell with this. There's nothing
here." So they said they had ultimately failed because they didn't
have suppliers. When we heard that insight. We went, "Oh my God.
That's exactly right." So, if you remember our original idea really
was, if we have the buyers the sellers will come. It turns out that
was probably wrong. Thank God we didn't go down that road very far.
Because what we've concluded is, if we have the sellers, the buyers
will come. So we've done this now with our Customer Advisory Board.
When we showed it to them, and I'm not kidding, I mean we have
audio to support this. The head of our Customer Advisory Board,
very well-known retailer here in the U.S., first said, "My God." He
said, "You did this so fast. This is really remarkable, but beyond
that this is an invaluable tool." So we've been working with them
to tune it up and make the search even more important. But we're on
to something. I can't guarantee.
My
surprise was this. When we decided to go get suppliers, my thought
was well, maybe if we really are focused on it this quarter and
push everything off to the side, maybe we can get up to 3,000 to
5,000 category participations. We ended up at 20,000. We're
actually now just think about 21,000, 20,000 category
participation. You can search for virtually any category of
anything and we're going to bring you back some people to talk to.
It's pretty remarkable. We sure as hell exceeded our own
expectations about what we could do. The customers that are looking
at it now and we're going to encourage them. We have to figure out
how do you get people to use it day-in-day-out. But without laying
out too much of our competitive position here, we think we see the
path to victory. It's going to take some time because you have to
get people used to the idea of using us as, "I need a tomato paste
supplier, where do I go?" We're trying to get them not to go to
Google and do tomato paste. But go, "ReposiTrak, they've got the
right guys. Here tomato paste. Oh my God look at
this."
So
one other thing. I'm sorry I don't mean to be long-winded, but this
is interesting. The more participations that we have, the greater
the revenue opportunity, if you think about that. If you do a
search right now and let's suppose for the sake of argument also
now that we only had two tomato paste guys. You look for tomato
paste and brings back two. How do I go to those two guys and charge
them for positioning on search like Google does? I can't. They both
show up on Page 1, right? So, what we really needed was to get to
the scale and I think we're there. I think at 20,000, if you do
what we did just the other day. Coffee. You want to coffee vendor?
We'll give you 90 of them, 9-0 coffee guys. Holy moly. So what does
that mean? That means do you want to show up on Page 1, take your
checkbook out. You want to show up on Page 1, use ReposiTrak as
your compliance management system for your suppliers. It's business
creating lots of opportunities because it exceeded our
expectations. Practically that we've got to figure out what are the
different ways to make money from all that. It's pretty exciting.
It's very exciting right now. So we're scrambling because you've
got to think about, wow, how do we get this monetized? There's
advertising, there's placement, there's users and you show up at
the top, there's revenue sharing opportunities. I mentioned one of
those in my remarks where we already have taken a coffee guy
strangely enough. A rapidly growing coffee guy and he said, "Look,
I'll do scan based trading with you. Help me find more retailers."
We did. So, we've got him negotiating now with 2,300 stores, I
think. He's thrilled, we're thrilled.
So,
it's starting to work. We just have to figure out all the
monetization ideas and that takes focus and time. I don't think I
can speed it up but we're on it. We're on it.
Ananda Baruah:
Thanks
Randy. The context and the detail is really helpful. I appreciate
it.
Randy Fields:
Thank
you guys.
Operator:
Thank
you. There are no additional questions in queue at this time. This
does conclude today's conference. We appreciate your participation.
You may disconnect at any time and have a great day.