Park City Group, Inc.
Q1 2018 Earnings Call Transcript

Published: 11 Nov 2017

[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.

[Dave 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 on 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. And 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 HUB’s compliance levels. Randy will talk more about this, but essentially we entered the first quarter with the largest ever backlog of recently connected suppliers. And as we’ve said before, the success of our customers is paramount and, 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 just expanded the Success Team and given them new tools to execute and, by the end of the quarter, our compliance levels were the highest in our history. And this occurred despite the fact that weather disrupted many of our customers, many 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 activities 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 and, 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’s 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 and 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 re-acceleration in the top line over the remainder of the year from all three elements of our converged platform

[Randy 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. As a result, 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 pilot is successfully in 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 the company’s prospect have never been better. Let me start with ReposiTrak. It was definitely a watershed quarter for 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 and produce the required documentation is always a difficult task, but that task falls to us. It’s important to get the HUB suppliers compliant 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 suppliers 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 the Success Team, if you will, we can now bring more suppliers into compliance in a week, what we used to do in a month. Now onto 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. And because of that, we’re 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, second quarter will likely be a record quarter for revenue growth for the Supply Chain aspect of our business. Onto 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 on some very exciting developments. MarketPlace is evolving into something much bigger than a service that allows retailers and wholesalers to select vendors that are already compliant and 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 call them, bad actors with good actors with a minimum degree of friction. It’s a very important idea and there’s a great deal of demand for it. But importantly, the value of ReposiTrak to compliant 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’s 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 broadening the category of suppliers that are in MarketPlace and we’re especially emphasizing nonfood suppliers. In short, what’s happening is that MarketPlace is becoming a broad-based B2B E-commerce 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, et cetera. All of that in a single capability-filled marketplace. Concurrently, we’re developing the capabilities and capacity for a rapid scaling that we believe will result in the successful pilot and our recently announced relationship with GMDC. Remember, GMDC represents over 600 nonfood personal product suppliers and people who sell products in over 125,000 retail locations representing more than $0.5 trillion 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 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 more – much more rapid growth by the end of the fiscal year and for MarketPlace to make a meaningful contribution to revenues in fiscal 2019. And certainly, while nothing is certain from this vantage point, ultimately, MarketPlace could become a very big deal. There’s an increasing belief that the food industry needs an online B2B E-commerce 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 to 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 options. I want to be clear though. There’s 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 process unless required to, to comply with securities laws 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 in our efforts to get suppliers compliant, which is mission one in ensuring our customers’ 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. And at this point, we’ll take a few questions.

[Operator:]

Thank you. [Operator Instructions] We’ll take our first question from Ananda Baruah with Loop Capital.

[Ananda Baruah:]

Hey, guys. Can you hear me okay?

[Randy Fields:]

We can.

[Ananda Baruah:]

Okay. Great, thank you. If I break up just let me. I guess, just starting with the revenue challenge, like weather had an impact that was a bit unexpected. Did you guys expect to spend as much energy this quarter on sort of driving compliance inside of the ReposiTrak installation as you recognize? And then, I have a follow-up off of that. Thanks.

[Randy Fields:]

Well, I think from a business reality, we ended last year, 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 customers’ success, and that clearly is get the suppliers more compliant. And frankly, that’s an issue that will always constrain the 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 trucks in and out. There weren’t any trucks. You’ve 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:]

And both of those dynamics make entire sense as you can see straightforward. Do you – as you continue your Success Team buildout, do you envision getting to a place where you could tend to both sort of bringing the backlog, driving the revenue and also driving compliance in the installs so you don’t have to make a sacrifice?

[Randy Fields:]

Yes. And, 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 more 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, keeping it 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 double.

[Randy 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 a seasoning that has to take place. There’s tools that they have to use. So it’s not throwing 100 people at it that would make a difference. It’s having the right people. That’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. And then, just with regards to the sort of rearranging of the fiscal year guide, so does that suggest the sort of 25% to 35% – you started out the year at 12%. Does that suggest that you could actually end, exit the year – and you talked that re-acceleration through the quarter is across the businesses. Does that suggest you could exit the year at north of 40%? And I don’t want to get too surgical here with it, but to do the 35% or even 30%, it might be suggestive of something like that. So I just wanted to ask for the context.

[Todd Mitchell:]

I think if you look at – we’re not a quarterly company. Obviously, if we’re reiterating our guidance for 25% to 35% for the year, there’s probably going to be a quarter or 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 at 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 a straight line trend.

[Randy Fields:]

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 our 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:]

Okay. I appreciate it.

[Operator:]

[Operator Instructions] And gentlemen, it appears there are no further questions at this time. I’d like to turn the conference back to Mr. David Mossberg for any additional or closing comments.

[Dave Mossberg:]

Thank you, everyone, for joining us on the call today. Our phone number’s in the press release. Please feel free to give us a call if you have any follow-up questions.

[Operator:]

And that will conclude today’s conference. We’d like to thank everyone for their participation. You may now disconnect.