Exhibit 99.2
C O R P O R A T E P A R T I C I P A N T S
Rob Fink, Managing Partner, FNK
IR
John Merrill,
Chief Financial
Officer
Randy Fields,
Chairman and 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 Park City Group Fiscal Fourth Quarter and Full Year 2021
Earnings Call.
As a reminder,
this conference is being recorded.
I'd now like to
turn the conference over to your host, Rob Fink.
Rob Fink
Thank you,
Operator.
Good afternoon,
everyone. Thank you for joining us today for Park City Group's
Fiscal Fourth Quarter and Full Year Earnings Conference 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 Reforms 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 materially from those forward-looking statements.
Such risks are fully disclosed 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
overviewing the financial results that will be discussed 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 would now like to turn the call over to John
Merrill.
John, the call
is yours.
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John Merrill
Thanks, Rob,
and good afternoon, everyone.
We continue to
execute on our stated strategy, delivering another profitable
quarter and year of growth. We've established a profit-oriented
business model with significant recurring revenue, low fixed costs,
and a growing operating margin. Our business is now easy to model,
and on an annual basis, we have significant confidence in
consistent growth. Each incremental dollar from here largely falls
to the bottom line, meaning our profitability will grow
substantially faster than our revenue, as it did in the fourth
fiscal quarter and all of last year. This yields a strong free cash
flow.
Highlights of
the fiscal year ended June 30 are as follows.
Recurring
revenue for our SaaS business, which includes compliance and supply
chain, was up 11% to $17.7 million.
Recurring
revenue as a percentage of total revenue increased from 80% to
84%.
Our annual
recurring revenue run rate, or ARR, as of June 30, 2021, was $18.4
million – a baseline of recurring revenue for Fiscal
2022.
MarketPlace
revenue increased 11% to $3.2 million.
With
across-the-board growth, total revenue increased 5% to $21
million.
SG&A
expenses decreased 5% against the 5% revenue growth.
Net income
increased 158% to more than $4.1 million.
Cash from
operations grew to $5.4 million, up 29%,
And we ended
the year with $24 million in cash or approximately $1.23 per
share.
We have
successfully 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. Our MarketPlace
offering has matured and its value to our customers has been
proven, albeit with a significantly less contribution
margin.
In order to
improve the margin of MarketPlace, we are planning some structural
changes in how we go to market to bring its contribution more in
line with our SaaS offerings. In other words, we intend to convert
MarketPlace from a transactional, highly unpredictable business to
a software-as-a-service comparable to our compliance and supply
chain offerings. We were successful at converting $5 million to $6
million a year in one-time license and service revenue to SaaS, so
I'm confident over the course of time we can do the same with
MarketPlace. In the meantime, MarketPlace remains largely
transactional and unpredictable.
As mentioned,
our full year recurring revenue at June 30 was $17.7 million. Our
annualized recurring revenue exit rate at June 30, 2021, was $18.4
million for Fiscal 2022, assuming no growth. Our stated goal, as we
have said in the past, is to grow recurring revenue by 10% to 20%
per year. As we have experienced very low attrition and we are
effectively at a 100% recurring revenue for the software side of
the business, our base recurring revenue is now highly predictable.
Furthermore, our sales team is incentivized on growing recurring
revenue beyond the base.
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We operate our
cash fixed costs of $12 million per annum, absent MarketPlace. With
$17.7 million in recurring revenue against $12 million in cash
costs, we are structurally a profitable Company. This is reflected
in our $5.4 million cash generated from operations. As I've said
before, about 80-85 percent of any incremental SaaS revenue over
the $12 million base falls to the bottom line, as we can scale our
revenue with very little incremental costs. MarketPlace on the
other hand roughly provides a 5% to 10% contribution margin. It's
not the software side of the business at north of an 80% margin,
but it does meet a customer demand despite its long-term
uncertainty. Our customers really like the service and we believe a
subscription model similar to an Amazon Prime will be well
received.
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 top-line revenue growth, profitability, and
cash.
Turning to the
quarterly numbers, Fiscal Year 2021 fourth quarter revenue was $4.6
million, down 20.5% from $5.8 million in the same quarter last
year. The decrease was due to lower transactional MarketPlace
revenue. At the height of COVID, many of our MarketPlace customers
demanded nitrile gloves and masks. As the larger pandemic concern
has abated over the last six months, so has the demand for
hard-to-find COVID-related items. Again, MarketPlace is
transactional revenue, highly unpredictable, but does fill a
customer demand.
Total operating
expense decreased 35% from $5.3 million in Q4 2020 to $3.4 million
in Q4 2021. The decrease in total operating expenses reflects
largely a $2 million decrease in the cost of goods sold, associated
with lower MarketPlace revenue. Sales and marketing expenses
increased from $1.3 million in Q4 2020 to $1.4 million in Q4 2021.
This 8% increase was the result of an increase in sales travel,
trade shows and other sales-related costs as longer-term COVID
concerns slowly continue to abate.
G&A costs
increased from $1.4 million in Q4 2020 to $1.6 million in Q4 2021.
This was primarily the result of an increase in higher liability
insurance costs and an increase in the reserve for doubtful
accounts. As I have said in previous calls, while we have not
experienced a significant customer default, we believe it is
prudent to increase our reserves, given some delayed payments we
received and given the ongoing disruptions in the supply chain have
affected some customers more than others.
For the fourth
quarter of Fiscal 2021, GAAP net income was $1.2 million or 26.1%
of revenue versus $480,000 or 8.3% of revenue. Net income to common
Shareholders was $1 million or $0.05 per common share versus
$333,000 or $0.02 per common share in the same period in Fiscal
2020.
Turning to the
full year numbers. For the year ended June 30, 2021, total revenue
was $21 million compared to $20 million last year. This 5% increase
in revenue is due to both growth in recurring subscription revenue
and MarketPlace revenue. Full year recurring revenue growth in the
software business was 11%. MarketPlace growth was 10.6%. Cost of
services and product support was $6.9 million compared to $7
million last year. This modest decrease is primarily the result of
higher expense associated to MarketPlace and the sales of PPE,
partially offset by lower overall development costs, a reduction in
outside consulting services and other cost cutting measures
implemented in response to COVID.
While we've
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 if the pandemic
continues to abate.
Sales and
marketing expenses were $5 million compared to $5.8 million last
year, a 15.6% decrease. The decrease is due to a reduction in trade
show expense and lower overall sales and marketing expenses,
particularly travel expense.
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G&A expense
was $5.2 million compared to $4.9 million last year, a 5.4%
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 year
ended June 30, 2021, GAAP net income was $4.1 million compared to
$1.6 million for the same period of Fiscal 2020. This 158% increase
in net income is largely due to an increase in revenue and lower
SG&A expenses. Fiscal 2021 net income to common Shareholders
was $3.5 million or $0.18 per common share compared to $1 million
or $0.05 per common share for the same period in 2020.
Turning now to
cash flow and cash balances. For the Fiscal Year 2021, we generated
cash from operations of $5.4 million compared to $4.2 million last
year, an increase of 29%. Total cash at June 30, 2021, was $24
million compared to $20.3 million at the end of Fiscal Year 2020,
an 18% increase.
With respect to
our stock buyback program, as we said during the height of the
pandemic, we made the prudent decision to halt our buyback program.
We recommenced the program in the third fiscal quarter and
continued our activity in the fourth quarter, repurchasing 126,927
shares at an average price of $6.30 per share for a total of
$800,000.
As our business
in its current and future cash flows have continued to increase in
their visibility and likelihood, the Board decided to increase the
size of our buyback by $10 million. This takes our total
authorization to $12 million. As said before, we believe our stock,
given the predictability of business, continues to be a very good
long-term investment for us and our Shareholders.
Thanks,
everyone, for your time today, and at this point, I'll pass the
call over to Randy.
Randy.
Randy Fields
Thanks,
John.
To sum up the
year, we grew our recurring revenue by 11%. We more than tripled
our net income to common Shareholders. We generated more than $5
million of cash and we ended the year with more than $24 million of
cash. Our annualized recurring revenue run rate at the end of the
fiscal year was $18.4 million, which more than covers our cash SaaS
expenses of $12 million. It should be noted that we achieved all of
this during the most significant disruption of our lifetime, a
global pandemic.
The results
again demonstrate the progress we've made in building the
predictable earnings model of the Company. Our model we believe is
the definition of sustained profitability and cash flow. There is
no doubt that the pandemic is continuing to impact our business.
Our customers are once again battling supply chain issues and
shortages, and now they have a new challenge to face. In the last
call, we mentioned the proposed FDA food traceability requirement
of the Food Safety Modernization Act, or FSMA. This is a new and
frankly burdensome regulation for our customers.
This new rule
is proposed with aggressive deadlines, an aggressive phase-in
period, and very few exceptions. In short, the proposed rule
imposes new requirements on those who manufacture, process, pack or
hold foods on the food traceability list and requiring them to
create and to store literally mountains of records. The effect of
the rule is to make compliance using paper-based systems nearly
impossible and simultaneously massively increase requirements for
data retention and data exchange; think literally tens of billions
of new records, our core competency.
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At the outset,
Rule 204, as it's called, will only relate to certain high-risk
products in 15 categories, things like soft cheeses, produce. And
it doesn't matter whether they're sold standalone or used as
ingredients; think tomatoes, for example. As products using these
fruits, vegetables, etc., move through the supply chain, each step
is required to add additional record keeping and/or record exchange
with other businesses in its supply chain. It's also clear the FDA
intends to expand this initiative over time.
The FDA has
explicitly said they hope the concept is adopted industry wide,
covering nearly everything. Simply put, the opportunity here is not
just large, but our customers need us to help. Since we already do
track and trace affordably and at scale as part of our supply chain
platform, this is right in our wheelhouse. In fact, we're the
obvious vendor to address it. We have the technology needed to do
the record retention and data exchange. We have the industry
knowledge, we have the largest in place network of suppliers and
our customers. It's perfect and we're using our already developed
existing platform.
Our plan for
traceability is simple, make it very low cost and very easy to
adopt, make it a simple expansion of our existing compliance and
supply chain offerings. In short, it's an add-on to what we do now
for our customers; but the industry needs this soon and will have
no choice but to adopt some technology. The current fiscal year
will be about lining this all up. We anticipate little revenue from
traceability in this year; but longer term, we expect that this
initiative could add to our already expected top-line revenue
growth at 10% to 20% a year.
The uncertainty
of the timing, etc., is obviously still there, but this is likely
to be a win. We are the experts in compliance. We are exclusively
endorsed by industry leaders and we have built the industry's
largest database of compliance suppliers. We are the ideal partner
to help our customers address the challenge. The FDA's urgent
timeline makes this a top priority for us, for our customers, and
our suppliers. People are concerned; in fact, the press is
interested in the problem. Incidentally, there'll be a nice
interview on MorningNewsBeat tomorrow, Wednesday,
which is really kind of the food industry insiders' daily update.
It's worth looking at.
We've made the
prep in the rollout of traceability an all-hands-on-deck priority.
There are some differences in our marketing strategy and execution
strategy that we need to work on. We're organizing ourselves around
that. Will this solution become an increasingly important part of
our compliance offering? Will it become a fourth leg of our stool?
Time will tell. But this will be the key focus of our fiscal year
and a possible driver for growth for us in the years to
come.
To ensure
getting proper focus on this product, we're taking a hard look at
some of our legacy offerings and making some calculated
adjustments. We're going to sunset one of our offerings that
doesn't seem to have the upside potential of track and trace and
we're slowly beginning to convert MarketPlace into a recurring
subscription offering. In fact, we already have a couple of
subscribers so far, and obviously we expect more over
time.
With all of
these factors in mind, Fiscal '22 looks very good from where we are
right now. Our Tier 2 initiative continues to see growth and our
supply chain is also showing favorable signs of being a priority
with our customers. We do believe that we're on course to achieve
our recurring revenue goal of 10% to 20% for Fiscal '22, barring
any worsening supply chain disruption in the global economy.
Simultaneously, we've continued our focus on tight expense
control.
Because of our
business model, our bottom-line growth will obviously be much
higher than our top-line growth. After successfully transitioning
virtually all of our software one-time revenue, we now enjoy a
highly visible SaaS revenue stream that more than covers our fixed
cash costs. This does generate a structural systemic and
consistently profitable and predictable cash flow for us. As a
result, we've decided to repurchase even more shares. Specifically,
the Board has approved a very significant increase in our current
buyback, up to an additional $12 million in shares.
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In short, we're
putting our money…well, you know, the rest. Our key goals for
the next fiscal year, or rather the current fiscal year, are, one,
to perfect the introduction of our track and trace solution to be
ready for Fiscal Year 2023 expansion; continue to work on
cross-selling to further deepen our relationships with our
customers; continue to add some additional modules to our existing
applications; a number of the cross-selling opportunities that
we've looked at are moving along, our out of stock offering, for
example, is doing very well. One of our largest customers in that
domain has just significantly expanded their work with
us.
Finally, we're
going to continue to generate additional profitability, drive cash,
and buy back more stock. So, in my view, we're in a great position
for success in Fiscal '22 and beyond, and as a leader, we're
uniquely poised to help the industry address this new FDA challenge
that in turn creates more opportunities for us.
With that, I'd
like to now open the call for questions. Operator?
Operator
Thank you. Our
first question is from Victoria James with D.A. Davidson. Please
proceed.
Tom Forte
Great. Hi, it's
Tom Forte on for Davidson.
Randy and John,
well, the first question I have for you is, you sort of talked
about this Randy in your opening remarks, but can you give us a
sense of the current state of distraction for your core customer,
the food service retailer?
Randy Fields
Thank you,
Victoria. Sorry, Tom, I couldn't resist.
The obvious
problem that you're reading about, everyone is seeing, in supply
chain is a distraction. There's no doubt about it. Costco now is
limiting toilet paper. There is a reality that our customers have
to take care of their customers first and themselves second. The
question is, how long will this persist? This is certainly not a
new normal as in this last year’s, but I would imagine that,
frankly, until spring or so their distraction should continue.
We've baked that into our view of the year.
At the same
time, the FDA concern with traceability is moving along. In fact,
reasonably speaking, it's probably moved as far as it has because
people are distracted, and when this set of regulations was
actually proposed last year, in 2020, I suspect the industry
distraction with shortages, etc., kept the commentary to the FDA at
very low levels. So, it's on its way. It's going to happen. So,
people will just have to find the bandwidth to focus on it.
We’ve baked that into our forecast, but clearly the supply
chain problems you're reading about are real. We see them
everywhere.
Tom Forte
Excellent,
thanks. I have a couple more questions, Randy. The next one is, I
think it's interesting that you're going to pivot MarketPlace to
more of a recurring revenue type model. Can we then assume that any
new product introductions in the future will also have an emphasis
on the current revenue?
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Randy Fields
Absolutely. I
think really there's two or three issues to think about. Were it
not for this issue of track and trace, which is going to be
enormous—it’s not just enormous in terms of
opportunity, but the changes that it will create in the supply
chain are unlike anything we have ever seen. We do not believe that
the industry is ready for it. We believe that the perturbations
will be large and that the scramble over time to be compliant, do
the right thing, etc., is going to be a real challenge for the
whole industry, the largest industry in the world. Given that, I
think our reality is that we just cannot focus on all of the things
that we are doing.
We took
something that has great potential, MarketPlace, and we have to
find another way to do it for the next period of time, maybe
forever, that requires less focus on our part, is a little bit
easier to execute. Simultaneously, we have a product that we've
successfully sold and implemented in the past that's actually quite
a good product. If we had infinite resource from a human
perspective—it's not a cost thing; it's just the human part
of it—we'd probably pursue it. But for now we're just going
to walk away.
You're exactly
right, we're in the SaaS business, so going forward I think you'll
see things that we do have that SaaS component to really enable us
to keep one simple business model in mind.
Tom Forte
Great. All
right. Two more, Randy. I'll ask one, I guess, and then I'll ask
the other one. You mentioned Costco, and if you look at Costco's
last three quarters, they've raised their expectations as far as
the implications of inflation on their results. How do you think
about inflation affecting food retailers, and then how it therefore
would affect Park City Group?
Randy Fields
Yes, inflation.
I hesitate to contradict experts like Chairman Powell, but it isn't
going away. It's now here, it's now been embedded. And the future
look because of the cost pressures are also there. I think Powell
may have been thinking about the monetary side of inflation. Well,
this is going to be cost push. I saw a recent example where a year
ago the cost of moving a container from Asia to, let's say, New
York, pick a number, was like $2,000, and that same container today
is $16,000. There's a bit of inflation in that.
That means that
everything that's inside that container is going to have to absorb
that very substantial, incremental cost. The fact is transportation
costs are going up. You can call it shortages, doesn't matter. Food
is transportation intensive, obviously. Those costs as they
continue to work their way through the system are going to have to
get reflected. There's not much room in the food business to absorb
cost increases. It's a low-margin business end to end.
The truth is,
as you watch the inputs go up in price, you can expect consumer
prices to tag along with it. The implications for us are really
pretty much neutral. The reality is inflation is generally not a
strong negative in the food industry. They're fast turn items, so
you have a chance to stock up at today's prices, sell them soon at
tomorrow's prices. So, it tends to help food retailers. I wouldn't
want to be in the business of having slow moving products; but for
the most part, this is a fast moving business. So, it'll generally
be good for our customers. Things that are good for our customers
therefore tend to be very good for us also.
Tom Forte
Wonderful. All
right. Last one and I can't think of, Randy, the perfect way to ask
this question, so I'll ask it imperfectly. I
apologize.
One of the
things that your Company has done so well is enable your core
customer to better compete against Amazon. When your core customer,
I guess, is less afraid of Amazon, is that a net negative for you?
How should we think about the fear of Amazon and how well it's
motivating your core customer right now to more warmly embrace
technology? And if they are less afraid of Amazon, is that a
problem?
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Randy Fields
Well, I'm not
sure that it's any longer a fear of Amazon. That began to recede
really several years ago. The fear in the industry was, is
online-ness going to be the way that groceries are done. In other
words, take Amazon out of the equation. It was how much online
business are we going to have to do? How do we do that? Now,
increasingly, how do we do it and not have huge margin contraction,
which in the 1% business you can ill afford. Now, mercifully,
what's happened is much of the move to online-ness was driven by
the obvious pandemic, and that's going to recede a
bit.
I suspect that
we're going to see the fear of online-ness, meaning it's going to
take away from the core business for retailers, abate. I think
they're going to learn to make adjustments in the online world, and
frankly, that creates what's called Omnichannel, which is really
good for us. A number of our customers do Omnichannel, meaning that
they've got inventory issues that they have to manage on both the
online side of their business in store. There's a lot of complexity
with that, and we help them with that complexity.
I'm not sure
that there's any real impact. I don't think it's really so much
Amazon-driven as it is is the world going to suddenly shift
completely to online and how do we compete. I'm sure you saw it,
but now Amazon is introducing delivery charges to Whole Foods. So
much of what Amazon thought that it could do—or we imagined
thought; we’re not psychic. But so much of what we thought
and feared from Amazon as an industry, it turns out there's no
magicians there, that the costs are the costs, they don't have
distribution advantages, etc., and now they're finding obviously
that delivering Whole Foods multiple times per week to people
included in Prime doesn't work out economically.
I think that
the Amazon threat per se is less important. Our customers are less
fearful; less fear is actually probably good for us on
balance.
Tom Forte
Excellent.
Randy and John, thank you for taking our questions.
Randy Fields
Thanks,
Tom.
Operator
Thank you.
Ladies and gentlemen, there are no further questions at this time.
I'd like to turn the call back to Randy Fields for any closing
remarks.
Randy Fields
No, I really
don't have anybody to call on for questions, so we'll wrap it up
and thank everyone for taking your time this afternoon. Take care.
Bye-Bye.
Operator
This concludes
today's conference. You may disconnect your lines at this time.
Thank you very much for your participation and have a great
day.
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