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Exhibit 99.1
C O R P O R A T E P A R T I C I P A N T S
David M. Mossberg, Investor
Relations
Todd Mitchell, Chief Financial
Officer
Randall K. Fields, Chief Executive Officer and
Chairman
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 Capita
Markets
P R E S E N T A T I O N
Operator:
Ladies
and gentlemen, thank you for standing by. Good day and welcome to
the Park City Group First Quarter 2018 Conference Call.
Today’s conference is being recorded.
At this
time, I would like to turn the conference over to Dave Mossberg,
Investor Relations. Please go ahead, sir.
David M. Mossberg:
Thank
you, Paula, and thank you everyone for joining us on today’s
call and your interest in Park City Group. Before we begin, we will
be referring to today’s earnings release, which can be
downloaded from the Investor Relations section of 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
current beliefs and expectations of Park City Group’s
Management and are subject to risks and uncertainties which could
cause actual results to differ from 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.
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’ll turn it over to Todd.
Todd Mitchell:
Thank
you, Dave, and good afternoon everyone. I will be reviewing our
fiscal first quarter 2018 financial results. We generated 12%
revenue growth in the quarter. As we've said, we're not a quarterly
company; there will be variability in quarterly growth. However, we
remain confident in our outlook for 25% to 35% revenue growth for
the year.
With
regards to growth in the quarter, we made a conscious decision to
focus in on our HUBs compliance level. Randy will talk more about
this but essentially, we entered the first quarter with the largest
ever backlog of recently connected suppliers. As we’ve said
before, the success of our customers is paramount. In the case of
ReposiTrak, success is defined by supplier compliance. Therefore,
it was critical that we focus on execution and bringing this
backlog into compliance. We've just expanded the Success Team and
given them new tools to execute. By the end of the quarter our
compliance level was the highest in our history and this occurred
despite the fact the weather disrupted many of our customers. Many
have warehouse facilities in the South and Southeast, but more
importantly, with two hurricanes in one month, FEMA basically took
all the independent truckers offline, putting the whole
distribution system into disarray. As a result, our HUBs naturally
lessened their focus on our compliance activity as they scrambled
to maintain their day-to-day operations.
However,
these factors do not make a trend and not only did we have a great
quarter in terms of executing on our backlog, we were also
successful at lining up new business. As I said we were successful
in bringing ReposiTrak's overall compliance to the highest levels
ever. As a result, we expect to return to add new HUBs to this
network this quarter.
We're
seeing a lot of interest from ReposiTrak HUBs in our unified
service delivery platform and as a result, we expect multiple
deployments over the remainder of the year. We also made tremendous
strides with MarketPlace development. We expect new use cases for
the platform to turn into big financial opportunities.
With
momentum accelerating coming out of the first quarter, our outlook
for annual growth in the 25% to 35% range is unchanged. We expect a
reacceleration in the top line over the reminder of the year from
all three elements of our converged platform, ReposiTrak, our
unified service delivery platform and MarketPlace. We are
increasingly confident that the diversification of our converged
platform strategy will help us to sustain growth for years to
come.
So,
let's talk a little more specifically about the numbers. First
quarter revenue grew 12% to $4.7 million. Year-over-year results
were driven primarily by growth in ReposiTrak subscription revenue.
Supply chain trends were strong but faced a difficult comparison.
We had two large customers ceased to do business in the past year,
one due to bankruptcy, another due to consolidation. This hit the
revenue comparison in the first quarter particularly hard. Our
customer retention rate is and has been well over 90%. We rarely
lose customers but occasionally it happens due to factors beyond
our control.
Fiscal
first quarter net income was $3,31,000 or 7% of revenue. Total
operating expenses rose 22% to $4.3 million, as we are continuing
to invest against our customer success. We are investing in scaling
our Success Team, we're investing in internal systems and
automation via our 10x Project and we're investing in new
capabilities for ReposiTrak, launching our unified service delivery
platform and putting resources against the development of
MarketPlace. Despite this increase in investment, we expect higher
revenue growth over the remainder of the year to generate strong
operating leverage and record profit and operating cash
flow.
Cost of
service increased 18% in the first quarter to $1.4 million. As a
percentage of sales this was up about a 150 basis points from a
year ago due to investments in new products and capabilities.
However, cost of service is likely to be relatively flat as a
percentage of revenue in fiscal ’18 versus fiscal
’17.
Sales
and marketing rose 33% in the first quarter to $1.6 million. This
increase was primarily due to scaling our Success Team. Total team
member headcount is up over a 100% from a year ago. We have a new
senior manager for the team and we're investing in new support
infrastructure. However, over the course of the year we expect
sales and marketing will fall as a percentage of total revenue
versus fiscal 2017.
General
and administrative rose 11% in the first quarter to $1.1 million.
This increase was primarily due to higher investment associated
with our 10x Project. We will continue to invest in automation and
other enabling technology however, as with sales and marketing, we
expect G&A to fall as a percentage of total revenue in fiscal
2018 versus fiscal 2017.
With
regards to cash flow and liquidity, we ended the quarter with
nearly $15 million in total cash. This was up $832,000 from the end
of last quarter. We also generated $1.1 million in operating cash
flow in the quarter. As we suggested, operating cash flow would
accelerate over time once we transition ReposiTrak from a prepaid
business to our current billing model. We are reaffirming our
outlook for fiscal 2018. We expect revenue growth to be in-line
with our annual range of 25% to 35%, although growth can vary
substantially quarter from quarter.
We
expect higher operating margins in fiscal 2018 and fiscal 2017.
Even with our plans for continued investment we still expect an
incremental contribution margin of 50% to 60%, which will translate
into record net income, record operating cash flows and a growing
cash balance.
Now
I’ll turn it over to Randy for a more qualitative
review.
Randall K. Fields:
Thank
you, Todd. As Todd mentioned, the first quarter really was about
focusing on execution. Specifically, it was to get a record backlog
of ReposiTrak connected suppliers to record levels of compliance.
The result of the remainder of the year looks very, very strong.
With our backlog addressed we are now ready to take on new
ReposiTrak HUBs.
Secondly,
our supply chain business is accelerating substantially, and then
finally the MarketPlace palette is successful expanding. As a
result, we remain confident in our outlook for 25% to 35% annual
growth and certainly as I've said repeatedly we're not a quarterly
company. We take a longer view of our business and our view is that
Company’s prospects have never been better.
Let me
start with ReposiTrak, it was definitely a watershed quarter from
ReposiTrak in terms of execution. We ended the quarter with the
largest ever backlog of ReposiTrak connected suppliers and as you
know the most important thing to us is the success of our
customers. It's not enough to collect simply a group of suppliers
connected to our network. They must also become compliant and
that's where the hard work is. Technology is not the obstacle.
Getting people to respond, produce the required documentation is
always a difficult task. That task falls to us.
It's
important to get a HUB suppliers compliance in a way that makes
them feel that we're also invested in their success. Because the
truth of the matter is we also want those suppliers that we're
leaning on to become compliant, ultimately to buy more from us in
the future for their own account. We have more to do but I couldn't
be more pleased with our progress. As I said we drove a record
number of ReposiTrak supplier to record levels of compliance. This
was enabled by both an expansion of the Success Team and very
substantial improvements in the productivity of that group. Because
of the success of this Success Team, if you will, we can now bring
more suppliers into compliance in a week than we used to do in a
month.
Now on
to supply chain. I'm frequently asked, “Well, how is supply
chain doing” I'm pleased to announce that we've been driving
interest in supply chain substantially through this converged
platform that we've built, our unified service delivery platform.
Because of that we are able now to deliver these supply chain
applications to ReposiTrak HUBs and their network of suppliers.
While we certainly have a lot to do in terms of refining our
go-to-market strategy and messaging, interest in this converged
business strategy is substantial. As a result, we’ve built an
impressive pipeline for supply chain in the first quarter, we
expect certainly to add several converged HUBs in this quarter and
over the remainder of the year. Indeed, the second quarter will
likely be a record quarter for revenue growth for the supply chain
aspect of our business.
On to
the third leg of the stool, as we call it, MarketPlace. MarketPlace
development continues to be an important area of focus for us, and
I'm pleased to report some on very exciting development.
MarketPlace is evolving to something much bigger than a service
that allows retailers and wholesalers to select vendors that are
already compliant. That was, if you remember, originally how we
conceived MarketPlace in terms of the role that it would fill. But
even as we expand its network, everything we see in our efforts to
get ReposiTrak suppliers compliant continues to indicate that
unfortunately many suppliers in the U.S. food supply chain are
either not willing or are not able to become
compliant.
MarketPlace
will enable HUBs to replace these—we called them bad actors
with good actors with a minimum degree of friction. It's a very
important idea and there is a great deal of demand for it. But
importantly the value of ReposiTrak to compliance suppliers begins
to change fundamentally with the advent of MarketPlace. Why Because
it means that for the good guys we're going to be able to bring
them more revenue, more business and more success. Obviously,
that's tremendously helpful to our sales process.
However,
in addition to this idea of compliant suppliers getting more
business, bad suppliers being replaced easily, there is a lot more
afoot with MarketPlace. Our initial pilot has been one with one of
the largest retailers in the country and it's continuing to expand.
We're broadly in the category of suppliers that are in MarketPlace
and we're especially emphasizing non-food suppliers. In short,
what's happening is that MarketPlace is becoming a broad based B2B
ecommerce platform. That means MarketPlace will have all of the
functionality or applications, if you will, of our entire business
from scan-based trading to compliance, ordering, forecasting, etc.
All of that in the single capability filled
MarketPlace.
Currently
we're developing the capabilities and capacity for rapid scaling
that we believe will result in this successful pilot and our
recently announced relationship with GMDC. Remember GMDC represents
over 600 non-food personal product suppliers and people who sell
products at over 125,000 retail locations, representing more than
$0.5 billion in sales. If you go back and read the GMDC
announcement carefully you'll note that, like FMI with ReposiTrak,
GMDC is exclusively endorsing MarketPlace as well as ReposiTrak.
This sets up an additional path of adoption for our converged
platform whereby a supplier begins in MarketPlace and then goes
back to ReposiTrak and then into supply chain. That’s a
different strategy than we originally envisioned when we imagined
people would go from ReposiTrak to supply chain to
MarketPlace.
What
we're suggesting now is we now see multiple paths by which people
can use more and more of the applications that we offer. It also
highlights how our converged platform is really self-reinforcing
and significantly broadens our opportunity. With all of these
developments, MarketPlace is experiencing the highest level of
interest of any product we've ever introduced. We expect much more
rapid growth by the end of the fiscal year and for MarketPlace to
make a meaningful contribution to revenues in fiscal
2019.
Certainly,
while nothing's certain from this vantage point, ultimately
MarketPlace could become a very big deal. There is an increasing
belief that the food industry needs an online B2B ecommerce
platform, like an Alibaba, or a much more efficient way to interact
than traditional models are currently being utilized. Like we said
when we announced ReposiTrak, we're not sure how this will evolve
but more and more of our customers think that MarketPlace might be
able fulfill this need and we think we should therefore explore the
opportunity.
Finally,
I want to highlight that the Board has authorized us to engage a
financial advisory firm to explore strategic alternatives for the
Company. Our current strategies are working extremely well and we
have multiple large opportunities in front of us. A number of
inquiries about joint opportunities here and abroad have come to
us. As a result, we think this is an appropriate time to explore
our strategic option. I want to be clear though, there is no
certain outcomes and we're not going to answer any questions on
this matter nor do we intend to comment on or disclose developments
regarding the progress unless required to to comply with Securities
Laws or until such additional statements are warranted based on
actual developments.
So to
sum it up, we feel terrific about how everything is going with the
Company, we're executing extremely well at our efforts to get
suppliers compliant, which is mission one, in ensuring our customer
success. We're seeing much more interest than we would have
imagined at this point in time in our unified service delivery
platform and that in turn is driving the growth of our supply chain
business. MarketPlace is taking off and could prove to be a very
big thing for the Company. In short, our converged platform
strategy is working, is driving growth in the near term and is
creating value in the long-term.
At this
point, we'll take a few questions.
Operator:
Thank
you. To signal for a question please press star, one on your
touchtone telephone. Also, if you are using a speakerphone please
make sure your mute button is turned off to allow your signal to
reach our equipment. A voice prompt on your phone line will
indicate when your line has been opened. Once again, it is star,
one at this time for questions. We will pause to give everyone the
opportunity to signal.
We'll
take our first question from Ananda Baruah with Loop
Capital.
Ananda Baruah:
Hey
guys. Can you hear me okay?
Randall K. Fields:
We
can.
Ananda Baruah:
Okay,
great. Thanks. If I break up here just let me know. I guess just
starting with the revenue. Sounds like weather has an impact. That
was a bit unexpected. Did you guys expect to spend as much energy
in the quarter on sort of driving compliance and servicing (phon)
ReposiTrak installation as you recognizedThen I have a follow up
off of that. Thanks.
Randall K. Fields:
Well, I
think from a business reality we ended last year at the beginning
of this last quarter, therefore with an enormous backlog from the
success of signing up HUBs. At the end of the day you sometimes
have to make decisions about is it more important to grow that
backlog or to achieve the customer success And that clearly is get
the suppliers more compliant. Frankly, that's an issue that will
always constrain a business and we chose to go down that path. The
interesting aspect of weather was, as Todd pointed out, when you
are in a business that is focused on literally getting product out
the door and we call with a problem that we need some assist with
in compliance, we may be bottom of the list in terms of what you're
trying to do. You need to get truck in and out. There weren't any
truck, you got stores that were flooded. It created a problem for
us on the compliance front. They were focused on, in their view and
rightfully, more important activities than those that they had
assigned to us.
Ananda Baruah:
Based
on those dynamics (inaudible) entire set (inaudible) forward, do
you—as you continue your Success Team build-out, do you
envision getting to a place where you can sense the (inaudible)
getting the backlog driving the revenue and also driving compliance
and the install (phon) so you don't have the exact
(inaudible)
Randall K. Fields:
Yes. I
mean the answer to that is of course. In fact, think of it this
way. I was being quite serious when I said we now do as much work
around compliance in a week as we used to do in a month. So, the
productivity of the team is going up, the sophistication of the
team is going up, the tools are going up, and the number of people.
I think—keep me honest here, Todd. Haven’t we doubled
the size of the team over the last year, roughly?
Todd Mitchell:
Yes,
just a little bit more than a double.
Randall K. Fields:
So,
we're definitely adding to the resource. We don't feel constrained
there, but we provide a great deal of training. There’s the
seasoning that has to be take place. There’s tools that they
have to use. So, it's not throwing a 100 people at it that would
make a difference. It's having the right people. It's giving them,
as we call it, time over target—no pun intended—and
indeed helping them to be even more successful with our customers.
From where we were to the compliance levels we got with the end of
the quarter, it was pretty astounding. So we're very pleased, but
you're absolutely right. Over time, you can simply take on more and
more.
Ananda Baruah:
Got it.
Got it. Then just with regards to the reiterance—reiteration
of the fiscal year guide so, does that suggest sort of 25% to 35%
started out the year at 12%, that suggest that you could actually
exit the year—and you talked of reacceleration during the
quarter across the businesses. Does that suggest you could exit the
year at north of 40% I don't want to get too surgical here with it,
but the new 35% or even 30%, it might be suggestive of something
like that. So, I just want to ask for the context.
Todd Mitchell:
I think
if you look at—we're not a quarterly company. Obviously if we
are reiterating our guidance for 25% to 35% for the year, there is
probably going to be a quarter or two that's above that range. But
I wouldn't look at the results purely linear. I think we've said
with supply chain being well over half the business and there being
a component of that in pro service and licensing that there is some
lumpiness to our business. I think that if you look at the
comparisons, they get harder, obviously. So yes, we'll see some
variability and we will probably have a quarter or two that is
better than the top range of our guide. But I wouldn't consider it
a straight-line trend.
Ananda Baruah:
Got
it.
Randall K. Fields:
Let me
add a little bit of color—Ananda, let me add a little bit of
color to what Todd just said. If you think of we have three
different, we call them, legs to the stool of the business. We have
ReposiTrak, we have what we've historically called vendor portal or
supply chain and now we have MarketPlace. We think of the first
two, meaning ReposiTrak and our vendor portal, as being relatively
relationship intensive. It's important the bedrock of our Company
is, if our customers are successful and if they feel in
relationship with us then they will buy more.
The
interesting aspect if you were to think of an open-ended growth
opportunity for us is MarketPlace. As MarketPlace ultimately comes
on, if it works the way it potentially could, it's not as
constrained by the relationship quotient as the first two aspects
of our business. So over time, the first two aspects of our
business are certainly capable of driving our 25% to 35% top line,
50% to 60% contribution margin kind of business going forward. But
the reality is that MarketPlace has the potential because it is
less constrained by the need for relationship;it's people buying
and selling. They need less handholding and so on and so forth. It
certainly has some potential for changing what that upper end
dynamic could be. That ain’t a forecast. It’s just what
could happen.
Ananda Baruah:
Got it.
Got it. Appreciate it. I'll yield (phon) the floor for now. Thanks
a lot.
Operator:
Once
again it is star, one at this time for questions. Again,
we’ll pause to give everyone the opportunity to
signal.
Gentlemen,
it appears there are no further questions at this time. I'd like to
turn the conference back to Mr. Dave Mossberg for any additional or
closing comments.
David M. Mossberg:
Thank
you everyone for joining us on the call today. Our phone number is
in the press release. Please feel free to give us a call if you
have any follow up questions.
Operator:
That
will conclude today's conference. We’d like to thank everyone
for their participation. You may now disconnect.