Attached files
| file | filename |
|---|---|
| 8-K - CURRENT REPORT - PARK CITY GROUP INC | pcyg8k_sep132017.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
Dave Mossberg, Investor
Relations
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
Ananda Baruah, Loop
Capital
Joe Feller, ATW
Companies
P R E S E N T A T I O N
Operator:
Good
day, and welcome to the Park City Group Fourth Quarter and Fiscal
Year End Conference Call. Today’s conference is being
recorded. At this time, I’d like to turn the conference over
to Dave Mossberg, Investor Relations. Please go ahead,
sir.
Dave Mossberg:
Thank
you, Melissa.
Before
we begin, we will be referring to today’s earnings release,
which can be downloaded from the Investor Relations page at the
Company’s website at parkcitygroup.com.
I also
want to remind everyone that this call could contain
forward-looking statements about Park City Group, within the
meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are statements that are not subject to
historical facts. Such forward-looking statements are based upon
the current beliefs and expectation of Park City Group’s
Management and are subject to risks and uncertainties which could
cause actual results to differ from the forward-looking statements.
Such risks are more fully discussed in the Company’s filings
with the Securities and Exchange Commission. The information set
forth herein should be considered in light of such risks. Park City
Group does not assume any obligation to update the information
contained in this conference call.
Throughout
this call we may be referring to both GAAP and non-GAAP financial
results, including free cash flow, EBITDA, Adjusted EBITDA, net
debt, net income and earnings per share which are non-GAAP terms.
We believe these non-GAAP terms are a useful financial measure of
our Company primarily because of the significant non-cash changes
in our operating statements. The reconciliation of non-GAAP results
is in our earnings release and the Investor Relations section of
our website.
Our
speakers today will be Mr. Randy Fields, Park City Group’s
CEO and Chairman, and Todd Mitchell, Park City Group’s CFO.
With that I will turn the call over to Todd.
Todd Mitchell:
Thank
you, Dave, and good afternoon, everybody.
We put
up a record quarter, in terms of total revenue and revenue growth.
This capped off a great year that just got stronger and
stronger.
Results
continue to be driven by growth from ReposiTrak. We signed three
more Tier 1 retailer hubs in the fourth quarter, and continue to
see strong momentum in adding Tier 2 supplier hubs. As a result, we
ended fiscal 2017 with nearly twice as many ReposiTrak hubs and
supplier connections as we had at the end of fiscal
2016.
The
sense of urgency among industry participants has steadily risen.
Food safety compliance is now one of the most critical issues on
industry executive minds, and they are coming to us. We are growing
as fast as we can while maintaining our high level of commitment to
our customers’ success. Our customers’ success is the
bedrock of our Company, because if our customers are successful and
they feel in relationship with us, then they’ll want to buy
more from us and they will refer us to others.
I want
to make some clarifying comments about our product
offering.
ReposiTrak
is our compliance management platform. We believe ReposiTrak hit an
inflexion point this year, with regards to market acceptance as the
industry’s standard compliance management platform. I want to
be clear as to what we are referring to when we make that
assertion. We believe there are certain attributes that every buyer
needs to know about every supplier in the US food and consumer
products supply chain.
ReposiTrak
enables a retailer, wholesaler, or product supplier to know that
every one of its suppliers is compliant with any attribute it
determines to be important, whether they be the obvious regulatory
attributes, such as a clean food safety audit or proof of
insurance, or less obvious attributes specific to a particular hub,
such as GMO or kosher certification. ReposiTrak has also been
exclusively endorsed as the platform for aggregating this
information by the most important industry groups including FMI,
ROFDA, and now, you’ll notice, GMDC.
With
the industry’s need, its unique capabilities, and these
endorsements, we believe ReposiTrak, as the industry-standard
compliance management platform, could one day link virtually every
buyer to every seller in the US foods and consumer product supply
chain.
Vendor
Portal, on the other hand, is our unified service delivery
platform. Vendor Portal offers buyers and sellers a much broader
set of capabilities than ReposiTrak’s compliance management
platform. Vendor Portal enables commercial activities between a
buyer and a seller on ReposiTrak’s compliance network. Vendor
Portal does this by layering on our supply chain applications to
ReposiTrak’s self-implemented cloud-based compliance
platform.
Vendor
Portal has many applications. Some of these, such as scan-based
trading, we are already the leader in, and we know there is a
significant market for these. Others, such as track & trace, do
not yet have a proven market. We think track & trace is an
obvious extension of ReposiTrak’s compliance capabilities.
Our technology for track & trace is embedded in Vendor Portal,
and we think we can do it better and cheaper than anyone else; but
so far, we’re not seeing broad-based demand for track &
trace, nor are we seeing any sort of industry consensus about a
common approach, the two necessary conditions for a real market
opportunity. We’re waiting for a better point of entry before
pursuing track & trace more aggressively.
That
being said, we feel very good about the prospects for Vendor Portal
in fiscal 2018. This is based on our assessment of the market for
already proven applications in Vendor Portal and the feedback we
are getting from ReposiTrak’s growing networks of hubs and
suppliers.
Let’s
talk about the numbers.
Revenue.
Fiscal fourth quarter revenue grew 37%. As a result, full year
revenue grew 35%. Fourth quarter revenue and revenue growth was the
highest the Company has ever generated. As a result, full year
revenue came in at the high end of our annual goal of 25% to 35%
growth. This was due to revenue growth driven primarily by the
addition of larger hubs; however, the smaller hubs, supplier hubs,
are also beginning to move the needle, and fourth quarter results
were aided by a small contribution from MarketPlace.
Profitability.
Fiscal fourth quarter net income was $883,000 or 17% of revenue, up
from $498,000 or 13% of revenue in the same quarter a year ago. As
a result, full year net income was $3.8 million or 20% of revenue,
up from $667 or just 5% of revenue in fiscal 2016. This increase in
profitability demonstrates the operating leverage inherent in our
business model.
With
regard to expenses. Total operating expenses rose 30% in the fourth
quarter, while total operating expenses for the full year rose 13%.
This steady increase in expenses was expected.
The
Company is stronger than it’s ever been before. Our business
is taking off. We’re generating positive net income.
We’re generating positive cash flow. We have a significant
and growing cash balance.
Therefore,
we will invest against our customers’ success. Specifically,
we are investing in scaling our success team. We are investing in
internal automation via our 10X project. We are investing in
developing new compliance capabilities for ReposiTrak. We are
investing in the launch of MarketPlace. These investments will
drive customer success, and that in turn will drive revenue growth
and more operating leverage.
Now, I
will drill down on the expenses by component. But as I’ve
said before, these numbers tend to fluctuate from quarter to
quarter as we invest in our future.
Cost of
service increased 50% in the fourth quarter for a 24% increase for
the full year. This was primarily due to incremental expenses
associated with the development and scaling of MarketPlace. Cost of
service will grow as we continue to invest in new capabilities and
new products. But, the fourth quarter was a step up, and we do
expect gross margin expansion in fiscal 2018.
Sales
and marketing rose 10% in the fourth quarter but declined 5% for
the full year. The drop for the full year was due to savings in the
first half of the year, associated with the repositioning of our
sales force, while the increase in the back half of the year was
due to us beginning to scale our Success Team once we had
repositioned the sales force. Our Success Team doubled in size in
fiscal 2017, much of this in the third and fourth quarters. We
expect it will likely nearly double in size again in fiscal
’18. But we don’t see ourselves as having that
marketing-heavy profile of most SaaS companies. We expect any
increases in sales and marketing expenses in fiscal will continue
to be far lower than revenue growth.
General
and administrative rose 38% in the fourth quarter, for a 31%
increase for the full year. This increase was primarily due to
higher consulting fees and investments associated with our 10X
project. We will continue to invest in automation and other
enabling technologies. But we also expect G&A to fall as a
percentage of revenue in fiscal 2018.
With
regards to cash flow and liquidity, we ended the year with $14.1
million in total cash; this was up $2.7 million from fiscal 2016
year-end. Operating cash flows for the year were $2.3 million; this
was up from $500,000 the year before.
Accounts
receivable and DSO did both rise significantly. This was because we
shifted ReposiTrak from an annual prepaid business to one with a
regular accounts receivable cycle. We did this because it
substantially reduces the time it takes to get a hub’s
suppliers connected and compliant.
As I
said, we’re stronger financially than we’ve ever been,
and therefore we will continue to invest in our customers’
success.
Similarly,
our capital expenditures in the fourth quarter was higher than
usual because of the purchase of a small aircraft. We believe a key
aspect of our execution success is going to the customer’s
site and having our team sit down with their team to define their
success. The purchase of the plane followed a careful analysis of
where our team is, where our customers are, and what is the most
effective way to achieve this objective, particularly as the number
of larger customers continues to grow, is putting greater demands
on the travel schedules of key members of our team.
What
does fiscal ’18 look like to us at this point?
We
expect revenue growth to be in line with our annual goal of 25% to
35%, with a caveat that growth may vary substantially
quarter-to-quarter.
We
expect higher operating margins in fiscal 2018 than fiscal
2017.
Even
with our plans for continued investment in 10X, in Vendor Portal,
in MarketPlace, we still expect an incremental contribution margin
of 50% to 60%.
We also
expect to see a higher percentage of net income convert into
operating cash flows, which should translate into an even larger
increase in our cash balance, which we view as a competitive
advantage.
In
short, things are going well, and it’s a pretty exciting time
to be part of Park City Group.
Now,
I’m going to turn it over for Randy for a more qualitative
review.
Randy Fields:
Todd,
thank you; Dave, thank you.
Once
again, Dave asked me not to mention the fact that I will be reading
these notes, and he’s now smiling.
Okay,
here we go. I’ll do this relatively quickly so we can get a
few questions in.
Yes, it
was an extraordinary year. Financial results were strong, but,
importantly, the scale and scope of our network is growing at a
terrific rate. I would say at this point we all feel as if we have
a very clear vision going forward.
On a
more basic level, 2017 was a year of, frankly, incredible
execution. We talk about execution all the time, and I suspect
through my comments, and I know you just heard it from Todd, we are
in the execution business. Why? Well, superior execution makes our
customers successful. That’s the focus. Customer success
makes them want to buy more from us, and customer success is why,
in fact, we now have a greater than 90% customer retention rate.
Interestingly, those numbers have actually trended up with the
addition of ReposiTrak.
Superior
execution is really the key for us, in terms of our top line
growth. But nearly as importantly, execution’s important to
the operating leverage that we want and desire. Because if we
execute well and we drive customer success, then they will refer
others to us.
As
we’ve always said, at least in this industry, the retail food
industry, you start slowly with a few leaders, you execute well for
them, you drive their customer success, and they begin to send
others to you. That’s why we’ve been saying for the
last several years that the growth rate of the Company was limited
by our execution ability. We frankly still believe
that.
If
referrals from our existing customers are our chief source of new
customers, then we don’t need to spend nearly as much on
sales and marketing as a typical SaaS company. In the long run as
Shareholders, that benefits all of us.
What do
we see? In the next three to five years, we see this Company having
hundreds of thousands of connections, tens of thousands of
customers, and a multitude of applications across three tightly
knit platforms: ReposiTrak, which is our compliance management
platform; Vendor Portal, our unified service delivery platform; and
MarketPlace, which is our compliant vendor sourcing
solution.
There
are three phases, in a sense, of customer revenue growth associated
with a customer’s success in each one of these three
platforms.
First
phase is ReposiTrak. ReposiTrak increases the scale of our network.
In other words, when we say scale, we mean how wide is it, how many
participants are there in it. Every participant in the US food and
consumer products supply chain, and potentially globally, needs to
be linked to at least one compliance management
platform.
We
believe, at the same time, that if our customers are successful
with ReposiTrak and therefore with us, it will lead naturally to
their using the Vendor Portal. The Vendor Portal increases the
scope of our network. When we say scope, we mean how deep is our
network, in terms of application set. It expands the mandate of our
engagement well beyond compliance to our supply chain
applications.
Now, if
our customers are successful using both ReposiTrak and the Vendor
Portal, it’ll be obvious to them that they need to be in the
MarketPlace. The MarketPlace in turn offers hubs, as we call them,
retailers, suppliers, wholesalers, people doing business with the
supply chain, an easy way to replace their non-compliant vendors.
MarketPlace offers compliant vendors, think of them as the good
guys, an easy way to capitalize on their success if compliant.
MarketPlace in turn is really reinforcing both the scale and the
scope of the network that we’re building.
If we
take a look out, what kind of a business is this going to be? What
will it be? Well, it will certainly have these characteristics.
One, it will be highly automated and highly scalable. Two, it will
be self-reinforcing by design, meaning using the system will cause
you to want to use more of the system. But it will always be
fundamentally execution-dependent. That’s our mantra; for
those of you who’ve been around for a while, you know
that’s what we’ve always believed, and frankly, given
where we are today compared to where we were just a few short years
ago, it looks as if successful execution has, in fact, been the
driver we hoped it would be.
In
other words, our growth really does depend on this continuation of
successful execution, rather than a big marketing
budget.
Well,
now I want to talk about what we call the Success Team. Years ago
we called them our inside sales people, and they aren’t; what
they are is our Success Team. Developing a Success Team is an
extremely important area of focus for us. We’ve hired a new
experienced leadership group who’s solely focused on
developing that team. We’re investing in training and
technology via this 10X project to get the success team additional
tools that we think they need. We’re refining their activity
set to drive productivity. We’re also staffing the team so
that they can deal with a wider and wider variety of foreign
companies that are, in fact, using ReposiTrak. The team already
speaks a total of eight languages, and more languages
coming.
Most
importantly, we’re building a culture of people who truly
care about the success of our customers. If you were to know us as
an insider, one of the things that we think you would appreciate is
that we believe, in the long run, the most important thing
we’re creating is a culture that enables our people to help
their customers to be successful. Ultimately, we believe,
that’ll be the primary driver of our success. We are
incidentally seeing some tremendous gains in productivity that is a
result of the focus. Recently, in just the last quarter, we saw
near triple-digit increases in the productivity of each of the
members of the team. As we look forward to 2018, we’re not
just going to scale the group in terms of size to handle more,
we’re also going to continue to enhance the productivity per
team member.
Update
on ReposiTrak. As Todd highlighted in his comments,
ReposiTrak’s momentum continues.
Here’s
an interesting observation. We added more ReposiTrak hubs and
supplier connections in fiscal 2017 than we did in the four prior
years cumulatively. For those of you who’ve been around for a
while, you remember the first year, we did a couple of hundred
connections, and now we’re doing them in the tens of
thousands per year. We’re moving aggressively to increase
both the scale and the scope of this compliance
network.
In
terms of the scale, we expect during the current year, 2018, to add
more Tier 1 hubs and supplier connections than we did in the prior
year, last year, 2017.
We’ll
be increasing our emphasis on adding Tier 2 supplier hubs this
year, and we’ve already, in fact, begun to see an uptick.
What’s exciting is that virtually every one of these new Tier
2 hubs that we’re, in fact, bringing on as customers have
been using ReposiTrak at the request of a Tier 1 hub prior to this.
The net of that is that they found the system so beneficial that
they wanted to become hubs themselves. In essence, they’re
self-referencing.
Remember
what we’ve been saying about execution versus marketing?
Well, if we execute well and drive success for our customers, then
they will feel in relationship with us and they’ll want to
buy more from us. The acceleration in Tier 2 sign-ups is, at least
to me, direct evidence of this dynamic.
If
we’re successful, we think that Tier 2 hubs will become a
significant new growth driver by fiscal 2019.
With
regards to growing the scope of the network, we continue to enhance
ReposiTrak’s core food safety compliance offering. In other
words, in each of these three different platforms, we’re
adding more and more applications, or apps, that our customers can
use to drive their success.
We
launched a new QMS application set this year with our Tier 1 hubs,
and these are things that help people ensure product safety and
quality, and they can be little things like monitoring the washing
the inside of the trucks between loads, or checking to make sure
all the rat traps in a warehouse are empty. Little things, but
important to the quality of products that our customers
make.
These
new applications are examples of how we provide a significant
differentiation. Our customers adopt them, and ultimately, of
course, that increases not just the scope of our engagement with
them, that drives up our revenue per connection. But most
importantly, it continues to deepen our relationship with our
customers.
The
Vendor Portal. Our converged business plan is gathering momentum as
customers realize that there’s a linkage between compliance
and supply chain management. That is helping to increase the scope
of our engagement.
As Todd
pointed out, Vendor Portal leverages ReposiTrak’s network to
an even greater scope by expanding our mandate well beyond food
safety compliance. The Vendor Portal creates a positive feedback
loop to compliance, while reducing the administrative burden and
costs for both the hub and their suppliers. As a result,
we’re seeing growing interest from a much broader group of
prospects and anticipate several significant adoptions of the
Portal in fiscal 2018.
MarketPlace.
The growing scale of ReposiTrak’s network is driving
excitement about MarketPlace as we’re getting closer to a
broader launch. Simply put, as the number of ReposiTrak hubs and
suppliers grows, the need for making new connections to replace bad
suppliers grows exponentially.
The use
of MarketPlace by our alpha customer, who’s one of the
largest retailers in the country, although small initially, is
growing very rapidly. This has not only just validated our thesis
as to the fundamental need for MarketPlace but given us a possible
additional use case.
Working
with this alpha customer has also helped to provide a build-out of
the MarketPlace’s infrastructure and provided us with really
important insights as to how this platform might be used beyond
simply vendor replacement. This, in turn, has led to discussions
with other retailers and we’re now in talks with several of
these hubs in preparation for a broader launch.
All of
these pieces of the puzzle are working with each other to grow both
the scale and scope of what we do.
A
little bit about some other strategic developments that are going
on.
From an
operational perspective, we’re going to continue to focus our
own internal efforts on the domestic retail food sectors. Our total
addressable market, though, is clearly much larger, including other
geographies and other vertical markets. But we’re realistic
as to how much we can put on our plate while maintaining our high
levels of customer success. We are, in fact, exploring partnerships
with others that will expand our reach without stretching our
resources. Here’s an example. We are beginning negotiations
with a large global retailer to use ReposiTrak, not just in the US,
but potentially in other geographic markets.
We’re
also having discussions with several potential partners that are
interested in using our technology platform in other retail
vertical markets here in the US, not food-related. My goal is to
consummate at least one of these partnerships sometime in fiscal
2018.
Also,
very importantly, we just got another key industry endorsement,
this time from GMDC. GMDC is the Global Market Development Center.
It’s one of the most important retail merchandise marketing
organizations in the world. They will be exclusively endorsing both
ReposiTrak and the ReposiTrak MarketPlace. They expand our non-food
compliance reach, representing over 600 general merchandise
retailers, wholesalers and suppliers. The products from this group
are in over 125,000 retail outlets and represent more than $500
billion annually in sales. This is a significant opportunity to
expand the scale of ReposiTrak’s network, and we are
certainly honored to be that well thought of by an organization of
GMDC’s repute.
Third,
I want to give you an update on our insurance initiative. You might
have noticed an announcement yesterday from FMI. FMI, the food
industry’s most important trade association, which also
exclusively endorses ReposiTrak, just made our insurance partner,
Berrian, their insurance partner. We were very closely involved in
the process. Berrian is a subsidiary of Levitt, one of the largest
specialty insurance brokers focused on the food industry. The
consequence of this partnership is that retailers that use
ReposiTrak may be able to lower their total insurance premium, as a
result, reinforcing the positive economic impact for a retailer in
using ReposiTrak. It’s been a long time coming, very
significant, and is part of our evolving strategy, if you will, to
make ReposiTrak an even more compelling proposition from a purely
economic perspective.
The
ecosystem around ReposiTrak and Park City Group is growing, our
reputation is growing, and we’re proud of our execution and
humbled by organizations like these and our customers who are
aligning with us.
As we
look out to 2018, it’s going to be a particularly interesting
year, because we see not only the continued high growth in our core
business, but we also see a rapid uptake of our other offerings,
the new things that we’re doing, as well as additional
alliances both domestically and internationally.
We’re
intensely focused on maintaining our high levels of customer
success, while continuing to scale the business. As a result,
we’re confident that 2018 will be within our 25% to 35%
annual target range. We’re also quite confident that
operating leverage will drive higher net income margins and a more
rapidly growing cash balance.
However,
we’re not a quarterly Company, so don’t expect
perfectly sequential growth, and do expect quarter-to-quarter
variability in growth. As I’ve said before, we don’t
see any upside in sandbagging the results and telling you how we
think we might perform. We tell it the way we see it, and hopefully
you appreciate that.
I think
the point is, from where we are, 2018 is going to be another great
year.
Some
questions.
Dave Mossberg:
Melissa,
can you give instructions on how to poll up for
questions?
Operator:
Certainly.
Ladies and gentlemen, if you’d like to ask a question at this
time, please press star, one on your telephone keypad. If
you’re on a speakerphone, please make sure that your mute
function is turned off to allow your signal to reach our equipment.
Once again, for questions at this time, please press star, one
now.
Our
first question will come from Ananda Baruah from Loop
Capital.
Ananda Baruah:
Hey,
guys, thanks for taking the questions. Hey, congrats on the solid
year, a finish to a strong year and a solid quarter here. A few, if
I could, just with regards to ReposiTrak, this is really an ASP
question. Given the acceleration of Tier 1 connections, and Randy,
you spoke of layering in Tier 2, and I think you actually used the
word that they’ve begun to accelerate, although I don’t
want to sort of misstate the—sort of really the tone of the
message. How were ReposiTrak ASPs in the June quarter relative to
the March quarter? I guess specifically I’m wondering if they
bottomed here. Then, how should we think about blended ASPs as we
go through ’18, given that it sounds like you expect Tier 2
to become a bigger part of the mix? I have a couple of follow-ups.
Thanks.
Randy Fields:
Great
question, Ananda. It’s even a difficult one internally.
Rather than give a specific answer, let me identify the forces, and
there’s several forces.
There
is a—one force, which is to maintain the current ASP, which
is the large hubs that we do business with are all at a—in
essence in MSRP. They have all the same price. If that’s all
we did, the ASP would be the same. Well, on the other hand,
we’re also introducing these other applications, products, et
cetera, which tends to increase the ASP. Having said that, we also
charge less to Tier 2s, so the greater the percentage of Tier 2s
going forward, the greater the downward pressure.
The
truth is, three different forces, one trying to keep it the same;
and you can argue that, because the base is becoming larger and
larger, the largest of those three forces is the force that says
the ASP will be stable. Then, what we suspect happens in the long
term is, as we move down – no pun intended – the food
chain, the pressure to bring down that ASP, which will be Tier 2s,
but because they’re smaller, what then happens is
there’s downward pressure, but we suspect that will at least
be offset by customers taking up our other offerings, which
increases the ASP.
I know
that’s confusing. But probably from where we are, we see most
of the force to stay the same, some force to push it down, and some
force to push it up. Todd, do you agree?
Todd Mitchell:
I would
agree. Ananda, I don’t think we really saw any change in
trends in third quarter versus fourth quarter.
Ananda Baruah:
Okay.
Todd Mitchell:
The
bulk of the business is still Tier 1, and the pricing on Tier 1 is
still pretty stable. I think that dynamic pretty much continues
through most of next year. I mean, that’s where the bulk of
the revenue is going to be coming from. Frankly, from where we sit,
we can’t really say where the countervailing forces of more
Tier 2s versus up-sell into Vendor Portal on the Tier 1 will take
next year’s ASP. As Randy highlighted, we think Tier 2s
really become more material in fiscal 2019.
Ananda Baruah:
Right,
right.
Todd Mitchell:
Hopefully
by that point we have deeper penetration of Vendor Portal to offset
when those numbers in isolation would be to—have put downward
pressure on ASPs.
Ananda Baruah:
Okay,
great. That’s really helpful, guys. Then, the second one is
just with regards to the Success Team, could you just sort of
framework for us kind of where you are in the process of what it is
that you’re looking to accomplish? I know this is always a
moving target. But you clearly have a strategy with how you want to
kind of construct the sales—the selling mechanism for the
next meaningful stage of the Company. However that—however
you guys think about that, if you could just sort of kind of fill
in that mental roadmap for us, to give us some sense of what it is
you’re shooting against. Not necessarily numerical targets,
it could be sort of subjective stuff that you’re using;
Randy, you talked about building a culture, maybe some of the
things that underpin that, some of the metrics and the milestones
that you want to have in place to really be able to go and scale
the business. I have one more, thanks.
Randy Fields:
Yes,
that—of the things we’re working on, that is the one.
My life experience before this, in Mrs. Fields Cookies, was that
the best way to supervise people is with a culture, not with
Managers. Meaning that most of the time people are unsupervised,
you cannot hear every word every person says to a customer. The
question is, how do you get people to care about the customer and
deliver the kind of message that you would like to be
delivered?
We’re
highly focused on getting people inside this business and the
Success Team that care about customers. Interestingly, many of them
are younger. What’s begun to happen, and I think this is
pretty peculiar, but I think an indication of our success at it;
virtually all of the recruits that we’ve had in the last six
months into the Success Team have come from the Success Team. They
are bringing people that they know in, and therefore our turnover
is extraordinarily low. More importantly, people in essence are
saying to friends and people that they know, “you’ll
like working here, this is a good place to
work.”
We get
people who care, because my—again, my life experience is, I
can teach you almost anything, I cannot teach you to care. You have
to find people that care about a customer, that they feel
personally connected. I could give you some interesting vignettes;
in fact, I’ll give you one. I think it
sounds—it’s appropriate. The other day I was talking to
the group about things that were meaningful. In the middle of my
talk—so imagine, here’s the CEO of the Company talking
to the newest group of recruits, and in the middle of that, the
phone rang. Well, the only time our phone rings here is a customer.
You could tell, you could just tell the room was, “what are
we going to do about that.” I thought, here’s a chance
to see if culture is working. What happened was, one of the people
on the Success Team got up, went over and answered the call and
dealt with the customer. Now, you could argue technically he was
interrupting the CEO, which is exactly what I wanted. I mean,
I—it was—I clapped at the end of it. I just said,
“That was extraordinary. What mattered to you most was not
whether the CEO would be mad that you were interrupting him, but
you knew the most important thing was that customer call.”
You—that’s not stuff you can teach people. They have to
come to the party with that as a feeling.
These
young people take tremendous care of our customers. They care about
their compliance and their success. It’s becoming
self-reinforcing. I get a letter or two a week from customers
saying how remarkable our service is or how quickly we got back to
them. It’s working and this team will help our customers to
buy ultimately more of our product. But their real job is just to
help the customer be successful with what they have
today.
Is that
okay, Ananda, is that what you’re looking for?
Ananda Baruah:
It is.
That’s helpful and that actually dovetails into my third
question, guys.
Look,
this is going to be the annoying analyst question of my trio of
questions, but I’m going to ask it anyway, because—you
finished, you put up 35% revenue growth for the quarter; clearly,
you talked about how Tier 1—if Tier 1 connections are up 2x
year-over-year. You talked about—you gave some color for
being up again next year, you’re sort of scaling into Tier 2,
and Todd, you had talked the Vendor Portal also starting to
layer.
My
question is, why not remove the low end of the guide or raise the
low end of the guide, the 25%; and then the part B is, look, I
think we all fully appreciate not allowing the guide to get ahead
of itself, so I won’t ask why not raise it, but what would be
the sorts of things that would allow you to kind of tease
up—beat the 35% high end of the guide, this next year?
Thanks.
Randy Fields:
I want
that question. First of all, what we said is, for the next three to
five years, that’s the range that we expect. It’s not
year to year. Rather than every year give you a different guidance
number, I really think that’s a sustainable long-term growth
rate for us, in that bracket, 25% to 35%. If the question
is—and I just need to be very cautious here. What kind of
factors take us to the high end versus the low end? We’ve
taken a lot on our plate this year, between Vendor Portal,
MarketPlace, et cetera. To a certain extent, we just don’t
know. We’ve got a pipeline that we think keeps us well in
that range. We know our ability to execute. What you don’t
want to do with a company that has this much potential is to
stretch it too thinly, because then of course you run the risk that
none of the good stuff you want to happen, happens.
I think
people at the midpoint of that range are closer than anybody at
either end, it doesn’t really matter. That’s not
additional guidance, it—some years in the next five are going
to be 25%, some years in the next five are going to be 35%, and I
also said, when we put this out there last year, it’s
possible, depending on those three forces that we talked about, if
the force that pushes our ASP up is stronger than the force that
pushes it down, then that growth rate can move to the higher end of
the range and we might have a couple of years outside the range.
But it’s really a function of the number of new customers we
take on and our ability to bring people inside the culture who can
take care of those customers. That’s the constraint.
We’re not being coy, we’re being straight, and
it’s not easy to give you a narrower range.
Ananda Baruah:
Okay,
got it. No, that’s helpful. The context is good. I really
appreciate. I’ll cede the floor now. Thanks a lot, guys. Good
luck and congrats.
Randy Fields:
Thank
you.
Todd Mitchell:
Thank
you, Ananda.
Operator:
Once
again, ladies and gentlemen, if you’d like to ask a question,
please press star, one. If you’re on a speakerphone, please
make sure that your mute function is turned off to allow your
signal to reach our equipment.
Our
next question will come from Joe Feller with ATW
Companies.
Joe Feller:
Hello,
Randy. How you doing?
Randy Fields:
Hi,
Joe, how are you?
Joe Feller:
Oh,
I’m pretty good, pretty good. How are you,
Randy?
Randy Fields:
Excellent,
thank you.
Joe Feller:
All
right. Well, I have two questions. Two of the—according to
your own thing from last year, two of the five biggest retailers
are not doing business with you guys. Now, with the buyout of Whole
Foods, it’ll be three of the five, I expect, because I
don’t believe you guys have done business with either of the
partners in that buyout. How do you guys hope to deal with that,
and how do you hope to deal with blockchain?
Randy Fields:
Okay,
good—is that the one question, or is that two questions,
Joe?
Joe Feller:
Let’s
say it’s one question. How do you plan on dealing with
blockchain?
Randy Fields:
We’re
not going to deal with blockchain, it’s a non-event.
Remember, I don’t want to be too techie here; blockchain is a
way of storing information. There’s nothing interesting or
intriguing about it except its presumed security. That’s the
presumed idea. The way people are thinking of using blockchain is
for tracking and tracing. That’s not our business. It’s
our capability, it’s just that we don’t get any revenue
from it, and as Todd mentioned, we see very little market interest.
Blockchain, underneath, has a real problem, as do—anybody who
has an RFID tag, or any tracking and tracing mechanism. All
mechanisms require they be put on a cart—so it doesn’t
matter, whether it’s an RFID tag or a label, blockchain has
to get the information from somewhere. It’s just a database.
It’s a distributed database is the way to think about
it.
Somebody
has to scan the information in. That requires a physical device and
human labor. The problem with that is, I can just assure you,
because people have been trying this now for, I don’t know,
10 years, they can’t get it cheap enough at the labor level
to do it. The top 50 CPG companies, consumer packaged goods,
potentially could afford to do something like that. The top 50 CPG
companies with a few retailers might do something around tracking
and tracing their goods. But the reality is, people don’t die
from Kraft macaroni and cheese. That’s not
our—that’s not the risk profile out there. The risk
profile is the smaller vendors. It’s the cost of creating the
label, scanning the label at every single stop. That’s the
impediment. When people want to do tracking and tracing, we believe
what they’ll want to do is do it inexpensively, and we have a
really inexpensive solution for doing tracking and tracing. But
candidly, there’s just not much interest. Lot of marketing,
not much interest.
By the
way, the way we calculate it, we do business with three of the five
largest supermarket chains in the US. By the way, Whole Foods was
not one of those. They’re not one of the top five,
either—regardless of who owned them. We do, today, do
business with three of the five largest. Who knows, could be
another—we might get another one. There’s certainly a
few we’ll never do business with. It’s not important to
what we do. In other words, the only—it’s hard to
explain. When you’re doing compliance work, the only revenue,
in essence, we would miss would be of suppliers that are captive to
any one of the retailers. If it was Schmarbl-Farby Inc., as a
retailer, and he had 22 suppliers that only sold to him, those
would be the 22 we wouldn’t get, because other suppliers
supply other retailers and therefore end up in our
network.
I think
we’re broad enough now, and as we look out, our pipeline is
such that we’re going to get very, very deep into the total
size of the supply chain. None of that concerns us.
Joe Feller:
Well,
then my next question is, with the buyout of Whole Foods,
don’t you think those guys are going to be in the top five? I
mean, from everything I’ve seen, the purchaser – not to
name names – has always ended up in the top five of
whatever genre they end up being in.
Randy Fields:
I
think—let me go back to what I think is fundamental. There
are hundreds and hundreds of supermarket chains, from a few stores
to thousands of stores. Strangely enough, they all have a
comparable number of vendors. If you’re a chain of 10, you
still have 1,000 to 1,500 vendors on your shelves. If you’re
a Whole Foods, you have 1,000 to 1,500 vendors. In our business
model, it really doesn’t matter to us whether it’s a
large chain or a small chain. Honestly, it’s sometimes easier
to get the smaller guys to do business with you than the larger
guys. But we do have three of the five, and frankly, it
doesn’t make any difference to me if it’s three of the
six or whatever it would be. We’re certainly pleased with
where we are. We do not have to get everybody. We’ve never
thought we would get everybody in the retail world to do business
with us, but we’re getting more than our fair share at this
point.
Joe Feller:
Fair
enough. Thanks, Randy.
Randy Fields:
Oh, you
bet, Joe. Thank you.
Operator:
That
does conclude our question-and-answer session for today. I’d
like to turn it back over to our speakers for any additional or
closing remarks.
Dave Mossberg:
Okay.
Thank you, everyone. This is Dave Mossberg. Our phone numbers are
on the press release. If you have follow-up questions, we are
available for those, and look forward to you—our next call,
which will be in …
Randy Fields:
The
ninth of November.
Dave Mossberg:
Ninth—around
the ninth of November.
Randy Fields:
Around
the ninth.
Dave Mossberg:
Okay.
Take care.
Operator:
That
does conclude our conference for today. Thank you for your
participation.