Park City Group, Inc.
Q4 2018 Earnings Call Transcript

Published: 14 Sep 2018

[Operator:]

Good day ladies and gentlemen, welcome to the Park City Group Fiscal Fourth Quarter and Full Year 2018 Earnings Call. Today's program is being recorded. At this time, I would like to hand the conference over to Mr. Rob Fink, Hayden Investor Relations. Please go ahead sir.

[Rob Fink:]

Thank you, operator and good afternoon everyone. Thank you for joining us today. Hosting the call are Mr. Randy Field, Park City Group, CEO and Chairman; and Todd Mitchell, Park City Group, CFO. Before we begin, I would like to remind everyone that this call could contain forward-looking statements about Park City Group within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not subject to historical facts. Such forward-looking statements are based on current beliefs and expectations. Park City Group management and are subject to risks and uncertainties which could cause actual results to differ from forward-looking statements. Such risks are fully discussed in the company's filings with the Securities and Exchange Commission. The information set forth herein should be considered in light of such risk. Park City Group does not assume any obligation to update information contained in this conference call. Shortly after the market closed today, the company issued a press release over viewing the financial result that it will discuss on today's call. Investors can visit the Investor Relations section of the company's Web site at parkcitygroup.com to access this news release. In addition, in our earnings release and on this call, we may refer to GAAP and non-GAAP financial results including free cash flow, EBITDA, adjusted EBITDA and adjusted earnings per share which are non-GAAP term. We believe these non-GAAP terms are useful measures for the company primarily because of the significant non-cash charges in its operating statement. Reconciliations of GAAP and non-GAAP results are in the earnings release and on the Investor Relations Web site. With all that said, I'd now like to turn the call over to Todd. Todd, the call is yours.

[Todd Mitchell:]

Thank you, Rob. Good afternoon everybody. Fiscal 2018 was the year that we brought everything together. In the latter half of last year, fiscal 2017, we begin to make strategic investments to bring new products and new services to market to round out our offering. In fiscal 2018, our revenue trends grew progressively stronger and our growth in expenses steadily declined as we benefited from these initiatives. And as a result, our fiscal fourth quarter was a strong in to a solid year across the board. That being said, the year was clearly headlined by the successful launch of Marketplace. This is an entirely new offering that seamlessly leverages our converged ReposiTrak platform benefiting from both our supply chain and compliance solutions. With marketplace, we can now help our customers with every aspect of their workflow across the supply chain making us the only end-to-end supply chain business that can help a retailer source that and transact with their suppliers. And we're seeing the positive results of our efforts. We are deepening our relationships with the suppliers on our network. Marketplaces is changing the dynamic of our relationship with these suppliers. We're no longer just a mandated service in their eyes. We're a partner in helping them to grow their business. Our Tier 2 supplier hub growth initiative is also deepening our compliance relationships with these suppliers. We're no longer just the way that they show their customers their compliance. We're a partner in helping them make sure their own suppliers are compliant and in helping them complete the myriad of activities they need to become compliance themselves. We're also deepening our relationships with retailers and wholesalers. Marketplace is a solution to yet another challenge they face helping them source new products faster and more efficiently from suppliers they know our compliant and at the same time our successful compliance engagements are helping us establish a relationship with every one of our retailers or wholesalers suppliers and showing these retailers and wholesalers, we have the resources to execute at scale. This in turn is leading to bigger mandates across our business. I hope you notice that today, after the end of the quarter, we announced we had signed our largest compliance deal ever. This follows signing three supply chain deals during the quarter for scan based trading they were very, very material and scale as well. In short, we are seeing greater interest across our entire product offering. Looking at the numbers a little more closely. We are very pleased with our fiscal 2018 results and we expect to see even better results in fiscal 2019. Fourth quarter revenue grew 22% to $6.3 million. As a result, full year revenue grew 16% to $22 million. As I mentioned, fourth quarter growth was the highest of the year and we feel good about our position going into fiscal 2019. Top line growth for the year was driven by the scaling of Marketplace in the second half of the year with approximately $1 million contribution to fiscal fourth quarter revenue. And a record quarter in supply chain growth in the fiscal fourth quarter which drove a record year for that business. I also want to highlight, we saw a strong growth in subscription revenues for both our supply chain and compliance businesses every quarter this year. Looking to fiscal 2019, we expect revenue growth to continue to be in the solid double-digit. With the first caveat, we're still not a quarterly company. So there will be variability in our quarterly results. And as we've said Marketplace is transactional and is becoming quite large quite fast. So it could add variability to our quarterly results despite our growing recurring revenue base. And the second caveat, our Tier 2 supplier growth hubs are much smaller than our Tier 1 retail and wholesaler hubs. So while we expected this significant volumes from our growth initiative here, in aggregate this will start out small and build progressively. With regards to profitability, our fourth quarter net income rose 44% to $1.3 million up from $833,000 a year ago growing at twice the rate of revenue. This shows we are beginning to see the positive return from our investment initiatives. And this trend will only become more apparent in fiscal 2019. We are focused on growing profits above all else. In that vein, expense growth continued to moderate in the fiscal fourth quarter. Total operating expenses rose just 17% to $5 million versus a 23% increase for the full year to $18.5 million. We are investing where it will translate into profitable growth. We're supporting a new product initiatives. We're maintaining our high level of customer service whether it be by scaling our success team or investing in the back office and internal automation. And while we talk of these investments in terms of driving revenue growth and operating leverage what they're really designed to do is to drive customer success. Looking at expenses like component, cost of service increased 23% in the fourth quarter to $1.9 million for a 24% increase for the full year to $6.6 million. This increase from last year was primarily due to incremental expenses associated with Marketplace and incremental expenses to develop new compliance applications. Cost of service will continue to grow as we invest in our business. But the last quarter was a step up. So increases should moderate in fiscal 2019. Sales and marketing rose 16% in the fiscal fourth quarter to $1.6 million for a 26% increase for the full year to $6.4 million. This increase from last year was primarily due to cost associated with building up the success team and giving them the tools they need to be successful. As we saw in the fiscal fourth quarter, we expect growth in these items to moderate -- to continue to moderate in fiscal 2019. General and administrative rose 13% in the fiscal fourth quarter to $1.3 million for an 18% increase for the full year to $4.9 million. This increase from last year was primarily due to higher spending in back office and other enabling infrastructure. As was sales and marketing, we expect the growth of these items to moderate in fiscal 2009. With regard to cash flow and liquidity, we ended the year with $14.9 million in total cash of $900,000 from $14.1 million at the beginning of the year. This was against accelerated investment in marketplace, increased investment in the success team and enabling infrastructure and the redemption of $1 million in preferred equity. Looking into the future, we feel good about the trends going into fiscal 2019. We expect to see continued double-digit growth in revenue and we expect to see even faster growth in net income and cash flow. That being said, we will continue to focus on our customers. We believe we have the right product set now we need to take advantage of the opportunity in front of us. And to do this, we will continue to focus on execution. We cannot say it enough. Execution is the key to our success. It's what drives an amazing level of customer retention. We have such high retention because of our focus on customer success because our customers' success is the bedrock of our company. If our customers are successful and they feel in relationship with us they will want to buy more from us. Thank you. I'm going to turn the call over to Randy now.

[Randy Fields:]

Thank you, Tom. Thank you everybody. My remarks today will be as scripted as the last few of them. But don't worry there's plenty of time to ask questions at the end. So obviously, we've just finished a milestone year for the company and frankly 2019 is poised to be an even more important year overall for our customers and frankly for our shareholders. As we've noted before, our customers responding to multiple challenges in this environment in food retailing. And this is creating some amazing opportunities for us. So I'm going to discuss several of these trends which are impacting our customer set and our prospect set. First, most importantly perhaps our changing expectations from consumers and it would appear that consumers don't just want more varied product choices. They want organic, GMO, non-GMO, more locally sourced et cetera. And that therefore is driving a high degree of product diversification pressure on retailers. Consumers are also simultaneously demanding more in stock from this diverse and for the retailer more complex product set. So in other words, consumers are making the job of retailers a harder job. They have to stock more items, more diversified; more locally sourced and keep them all in stock, tremendously difficult problem. Secondly, retailers have to deal with what we perceive that I think now the world perceives as increasing risk and regulation in their supply chain. Interestingly, it's the consumer expectation that is driving that risk meaning as you diversify your product set as a retailer to more and more suppliers who are typically smaller and smaller, the risk around food safety et cetera is going up. So strangely enough, consumers wanting localization and product diversification are pushing retailers into a more and more risky position with regard to their supply chain. It's inherently more risky. Now, third retailers are facing a growing regulatory and tort risk. In case you didn't know this and this is not just in the Food Safety Modernization Act which got us into the compliance business. But if you notice last year was a record number of recall. In other words for whatever set of reasons, the world is becoming just a little bit less safe from the perspective of the kinds of foods and the quantity of foods that are making people sick and are having therefore to be taken off the shelves. But here's another example, in this one interestingly is socially pressed. Prop 65 in California, Prop 65 and I'll come back to explain exactly what it is, has become an increasingly difficult problem for our customers and therefore a major opportunity for us. Perhaps finally we should be thinking about new technology which is becoming more interesting if you will to the food business. This is an important dynamic because it would seem logical and I'm sure it does seem logical to you that businesses would always be looking for the next big thing to help them get a competitive edge. But that's not been the case for the food industry historically. Remember this is a risk adverse, low margin conservative industry. They don't want to do something until they see someone else do it first almost a chicken and egg situation. But Amazon's acquisition of Whole Foods has changed that, has created a frightening problem for our customers and it has created a huge catalyst for change in the industry because Amazon is showing them what they need to do. How? Well, Amazon is addressing the changing consumer demands; if you go on Amazon and look at the number of food items it's staggering. It also offers frankly the consumer a wide variety of information about products including are they there. There is virtually no retailer in the United States that maintained a perpetual inventory that enables them to know exactly what's on their shelf. If you've used any of the food delivery services like Shipped, Instacart et cetera you've found frequently that an item that appears to be in stock they call you or text you or whatever and explain that you'll need to substitute it if you want the order completed. The reality is retailers have a difficult time with just knowing what they have on the shelf. And finally, and this is really the critical element here. By acquiring Whole Foods, Amazon is taking the technology that has as its basis put needed in brick and mortar. So it's just down the street from your local grocer that's creating an interesting sense of urgency in the industry. But overall, that's what makes for example our Marketplace so important ReposiTrak marketplace by the way isn't just another offering in our product suite. I think it has a pretty reasonable chance to becoming the cornerstone of our entire ReposiTrak platform and that enables our customers to move more rapidly, increase their product choice and localize their business and simultaneously manage their inventory with more agility. Obviously we think we're a lot more than simply the marketplace company in spite of how it's performing. We are clearly the industry leader in compliance and food safety management. I think it's noteworthy that we're now coming up to nearly 70,000 connections in the compliance arena. Our supply chain capabilities frankly are unrivaled in terms of addressing the needs of our customers. And I think that our total customer connection across all of the platform is something in excess of 250,000. So we're at scale and that's critically important to the kinds of customers that we're doing business with. During the last two years, the team has worked enormously hard to converge the supply chain and compliance businesses and launch Marketplace simultaneously. This introduction of what we call a converged ReposiTrak platform is without a doubt and in the long run will be seen as the most important of all in the company's history. With the platform, we're now uniquely well suited to help our customers be successful as they face ever increasing challenges in managing their supply chain. I'd like you to think about it this way, while others define supply chain as simply forecasting and ordering, we think supply chain is very, very, very different than that. So here's how we would define supply chain. It's one sourcing supplier. We do that. Two, it's vetting those suppliers to be sure that they are someone that a company should do business with. And then thirdly, if that space that others consider to be the whole enchilada if you will, it's transacting business with those retailers. So we've begun getting new customers interestingly now from all three of those application suites that we have from Marketplace, from our compliance management and from our supply chain business. Frankly, it's a bit of a surprise but it's a nice one. Our original vision was that compliance would tend to bring in all of the new customers that now we're seeing that all three application suites are attracting net new names to us. We're proud of that and frankly as long as we continue to execute it should continue to be the case. Well moving on each of these products, we will start with Marketplace. First I want to make is that Marketplace is incremental on an already strong business. It's different than the other pieces. The second thing, I want to highlight is although it's incremental, it's quickly becoming a big deal for us and therefore it's garnering a lot of focus internally and a lot of our resource. I'm sure all of you saw the announcement that it achieved nearly $1 million of revenue in the fourth quarter. That certainly makes it our most successful product launch in history. In fact, just for comparison it took our compliance management business 12 quarters ramped to the point that was $1 million in quarterly revenue. Interestingly so far because we want to make sure that our execution is absolutely brilliant as we expand the product. There's really only one buyer in the marketplace currently and that buyer is continuing to expand the use of the Marketplace tool into other areas and product categories across our business. I think in the long run, and something to note is this makes market place by far the highest revenue per customer product in the whole portfolio. And that's why over time if we're successful with it, it will become a very important part of our total business. But while we are scaling Marketplace, we do expect to add at least two new buyer hubs and that's our goal during fiscal 2019. So we're going to go hopefully between now and next June from 1 to 3 buyers in the Marketplace. But remember as you heard me say countless times, we want to scale it based on success not just scale it. So we're finding buyers with specific need and then making sure we have suppliers in the marketplace that address those needs. The idea is that as the dating service if you will. We're trying to set up a win-win proposition on both sides of the transaction. Why? Both should be obvious, this approach creates happy referenceable customers. So we're confident the Marketplace will be a significant and growth contributor to fiscal 19. And frankly it's the center of our plate in terms of focus. Although, I would be remiss not to remind you, the Marketplace is going to be seasonal, so progress is unlikely to be in one year. And it's not a finished initiative yet. We still have lots to do to make sure that our execution and how we manage that business continues to go on the right track. Now for those of you remember that's exactly what we did with the compliance business. In the first year with compliance, we did 200 connections with ReposiTrak compliance and as you know recently we've done in a typical year 10,000 or more connections. So we're really good at learning how to use scale of business from an execution perspective without in any way denigrating the quality of what we do. While speaking of compliance; compliance continues to be a growth engine for the company. We're still seeing strong Tier-1 meaning retailer wholesaler hub growth. We added three new Tier 1 hubs in the fiscal fourth quarter and as we highlighted in the press release after the end of the quarter, we signed the largest deal for compliant that we've ever done before. This was a big win for us obviously. We're now seeing growth from 2 compliant initiatives, the Tier-2, or Supplier Hub initiative and the whole Prop 65 mandate. Let me address both of those things quickly. With regards to Tier-2, or Supplier Hub growth initiative after we have this existing focus on Marketplace implementation if you remember in the fiscal third quarter we shifted more of their focus to Tier-2 up sells in fiscal fourth quarter and that actually produced results quite quickly. We added as many supplier hubs in fiscal 4Q as we did the entire fiscal year up to that point in time. So with many, many thousands of suppliers already in our compliance network, this represents in the long run a huge opportunity within our existing book of business. We simply have to become more and more capable at delivering the sales message, the marketing message and converting them from the kind of users they are to now to actually becoming what we call a Tier-2 or Supplier Hub. On the Prop 65 mandate, is one of those amazing things, Prop 65 is a California, where else would it be? California regulation which requires retailers to get their suppliers to confirm that their products don't contain harmful elements, which means virtually every product has at least one of those. And ReposiTrak is a perfect solution for monitoring that kind of information. So we're starting to get more and more incoming calls from retailers that weren't even on our prospect list worried about the impact of Prop 65 on their business. So as a result I'm confident that compliance will continue to be a significant growth contributor in our fiscal 2019 and beyond. In terms of supply chain as Todd mentioned, we had a record quarter in terms of supply chain growth led to a record year for the business. And if you remember a couple of years ago, but what you are doing in supply chain, we said don't worry, we tend to focus one product at a time so we don't overstress the system and now we're seeing a terrific revival of interest for example in our original product which is scan based trading. And in case you don't know what a scan based trading is, it's really an application if you will or a business process that allows retailers to do consignment inventories so that they don't have to invest in the inventory, the supplier does. We help them track it, manage it, et cetera. We invented this process back in the 90s, we enable retailers to in essence therefore sell more but stock less. And obviously, can remove a significant amount of inventories from the books, improving the retailers' balance sheet, giving them more flexibility. And when you join it with our forecasting and ordering, it simultaneously reduces inventory, but interesting we can increase sales by reducing out of stocks. So it's sort of a double barreled shotgun. During the quarter, we signed two deals of large retailers to adopt our scan-based trading platform. Going to third deal with the large national supplier to execute scan-based trading across -- think it was about 14,000 customer locations. Very exciting because what this now shows and this is important is that all three of our application suites on the converged platform are attracting net new customers. In other words, we have 3 points of entry into the ReposiTrak suite of application. Now this is a slightly different take that I think it's important for you to understand how we think about this. By having three distinct suites, we appeal to a broader range of perspective customers. We increase our up selling potential, but at the same time we reduce our risk of being dependent on any single application or any typical competitor. Very important, we increase our attractiveness and simultaneously reduce the risk that just in case, we had a problem in one segment of the business. It is not the only leg of the stool if you will. Please try and remember that as we progress over the course of the next several years. With the introduction of Marketplace and our ReposiTrak converged platform, we have a service offering and now a sales structure that carries into the future. It's not mature yet. It's a work in progress but it is coming along. Our customers can use the ReposiTrak platform to contend with virtually any of the challenges that we talked about early in our call. That's why we ended the year on a strong note that was the highest quarterly growth of the year. Most importantly net income grew twice as fast as revenue. Our profitability is obviously important. We know that. It's important to you as an investor, but it's also important to our customers more and more of our customers are large companies and they want us to have staying power. So cash on our balance sheet and improved profitability is important to them as well as to you. And that's why we feel good about our position going into fiscal 2019. We now have multiple drivers, all three of the application suites are working together. So think of it this way. We've got Marketplace resourcing, compliance for vetting and supply chain for transacting across the entire business. As such we should continue to see very strong earnings growth. We've largely completed the investment of new product introductions but we still have some very exciting additions coming. I'm giving a little hint here especially in the area of artificial intelligence. We've been doing some interesting research around AI and I think you'll see AI start to appear in a number of our applications helping our customers in a dramatically different fashion than we've been able to. I hesitate to use the word revolutionize, but I think it's close to revolutionizing how we interact with our customers in terms of what we can do. More on that, obviously later, but we're reasonably close to actually piloting and testing some of these AI ideas. We've largely completed the investment in our back office automation although Marketplace is still young. So obviously that's going to require some additional work. But as Todd mentioned, Fiscal 2019 again it's going to be about execution. We have to continue to tune our cross-selling abilities. We have to continue to improve our back office management. We have to continue to implement our supplier hub at an ever accelerating rate. We got to be faster and faster and better and better. And we have to do that while continuing to generate superior results for our customers because just as Todd said, if we continue to execute superbly, our customers will feel in relationship with us and if they do feel in relationship with us but want to buy more from. The execution has been fabulous and that's why I don't know seriously of any technology company with a lower loss of customers or churn rate than we have. We really do deliver -- we really deliver on our customer problems. So our goal here really then is simple is to continue to execute superbly, continue to help our customers to be successful and continue to build a highly profitable business. That's it. Questions.

[Operator:]

[Operator Instructions] Our first is Ananda Baruah, Loop Capital.

[Ananda Baruah:]

Hey guys. Good afternoon. Thanks for taking the question and congrats on the solid quarter all around. I guess I have a few here if I could. You guys did a good job or you did like really helpful job of kind of walking through, it [differ] [ph] like in the stool and where you are right now with them and the interplay between them. Could you drill down a little bit and just give us a sense of blocking and tackling perspective, what you'll be focused on through the fall into '19, this is the first time you've had -- let's say you have got higher level all three businesses, all three services up and going at the same time. So how do you guys plan on mining this three together now, that would be helpful and I have a couple of follow-ups. Thanks.

[Randy Fields:]

So I think it's fair to say, by the way, I think you should offer a prize for the first person that pronounces your name correctly. Sorry. I think the reality is that we're going to be focused to a great extent on what we call the Tier-2 hub initiative. It's a learning for us. We're going to have to get skilled at it. It requires a different approach than we've taken before. So we're experimenting and pretty soon we'll have a business process if you will because by nature process driven. While I have a process that produces the result that business over the next several years is very important to scale. So first we have to learn how to do it and the consequence will be people scale it. So Tier-2, if we will is critically important initiative. Secondly, in fact it's a lot of my time honestly. Secondly focusing continually on Marketplace, it's obviously going well. We're so pleased that the execution has just been great. There's still significant learnings in the back office part of Marketplace that we want to get better tuned. But I would say if you put those two initiatives to the top that's a big piece of the focus inside the process.

[Ananda Baruah:]

Got it. And Randy, you made mention of the Tier-2 was going to be a strong focus of your time as well. In what way, I guess in what ways what will it require your time and attention?

[Randy Fields:]

Well, we're moving from a service centric organization -- let me give you -- I'm going to put a number out there I'm not highly confident that it's correct that I think it's pretty close. What if I want to say that our churn rate last year meaning our loss of customers was Todd, 2%?

[Todd Mitchell:]

Right around 2% in the compliance business.

[Randy Fields:]

It is just crazy. I mean we're really, really good at doing this. So the business reality for us is that we've gone -- we're going to have to move from a service centric organization to a more sales centric organization with that group of people. Now that takes some training and management and process that is coming along. So it takes time -- everything in this business takes time and focus if you care about execution. If all you care about is marketing and sales, it's actually pretty easy. But if you care about the customer experience, you better pay attention to the execution or you will pretty soon screw it up and lose your market reputation. So huge percentage of our time is internal on how we're executing with our existing customers and that activity will take a lot really well, but I'm getting side by side. Yes, last week has been pretty remarkable.

[Ananda Baruah:]

Got it. That's helpful. And then, just last one for me for now, I can see before I get back in the queue. I mean you guys did a great job on the margins this quarter. How would you like us to think about, you mentioned on this call and then also on recent calls about upon getting the business to stood up like we are now, the potential to see pretty attractive incremental margins as they ran. So given that you've just put up a really nice and really solid margin in this quarter. How would you like to think about that for fiscal '19? Any, I guess any context would probably be helpful for us? Thanks.

[Todd Mitchell:]

I think we expect to see pretty significant increase in net income in fiscal '19. Certainly debt net income will grow much, much faster than revenue and we expect good revenue trends. In terms of the revenue mix, I think as we've talked before that's what's going to drive kind of the margin mix. Marketplace is as we said dilutive to gross margin, but accretive to net income. So, ultimately it will determine what our operating margin looks like, but the scale in which the revenues are growing their did and it is profitable means that it will be -- it will contribute to our net income.

[Randy Fields:]

That's the way to put it. It's running ahead of our expectations in terms of its contribution at the margin level to the business a fair statement.

[Todd Mitchell:]

To both the revenue and margin.

[Randy Fields:]

So, we're pleasantly surprised, which means we're going to double down on our management of it to make sure that we've got it right. And at this point, it's almost self scaling. We've got a lot of interest from other people about how can they participate. So we know that when we get aggressive about bringing people into it that we should be able to -- there will be a sales cycle, but we can bring people into it, but it's doing better than we thought it would. It will never have the same margins as the rest of the business, but it'll have a very nice margins and contribute significantly to dollar profitability in the enterprise.

[Todd Mitchell:]

So I think whatever percentage of it makes it, will ultimately determine our margins for the year. The rest of the business is largely going to piggy back off of investment that we made last year. I think that that the poor OpEx excluding Marketplace is, I'm not going to say flat, but certainly will increase well below the growth in those businesses.

[Ananda Baruah:]

Got it. Thanks. It's helpful context. Thanks guys.

[Operator:]

Our next question is from Tom Forte, DA Davidson.

[Tom Forte:]

Great. Thanks for taking my question. I have two questions. One, can you walk through the fixed versus variable nature of your revenue for your three lines of business? And then, number two, you've talked in the past about international expansion and potentially looking for a partner. Can you update us on your thoughts on international expansion as well? Thanks.

[Todd Mitchell:]

I'll take the first question. So across our 3 application suites, compliance and supply chain are fundamentally subscription businesses with recurring revenue streams. That's not to say that they are 100% recurring revenue, but a large percentage of that revenue is reoccurring, it's growth that increases -- the faster they grow, there's a certain amount we charge to bring customers online and that's basically the only non-reoccurring component. Marketplace is transactional. And so I won't call it reoccurring, but what we've seen is that the way that we're scaling this business is not to let it scale randomly, but instead to bring on a customer with a specific need, and then suppliers that have products to satisfy that need. And so that mitigate some of the randomness to the transactional nature of that business because they're essentially buying for what we would call events whether that event be a six month event or a weekend long event, but that business is entirely transactional from a contractual perspective.

[Randy Fields:]

And the answer to the second part of your question Tom, we've already established and announced a partner in the United Kingdom and I'm envious of their prospect list. It's almost a who's who of U.K. and continental Europe retailers. So we're starting to work through the list making calls and our fingers are crossed and we're in search for partners in several other places in the world. And as we have transactional stuff to report we certainly will. So we're pretty excited about that.

[Tom Forte:]

Great. Thanks for taking my question.

[Operator:]

[Operator Instructions] Up next is Walter Schenker, MAZ Partner.

[Walter Schenker:]

Hi, Randy.

[Randy Fields:]

Hi, Walter.

[Walter Schenker:]

Three questions, two are very short, then one is more interesting. One, why would you have increased the line of credit debt with the cash we have would seem -- as a negative arbitrage there. Question 2 is, is the large new compliance contract or a retailer or a supplier. And then, the interesting question at least from my standpoint is you announced a large new 14,000 retailer supplier, how does one get retailers as a supplier. How do you force them to use this? I understand how a retailer can force it down? How does the supplier force it up?

[Randy Fields:]

Yes. Interesting. Are you okay Walter, if I answer them in reverse order?

[Walter Schenker:]

Your company.

[Randy Fields:]

Yes. Okay. We are finding some large suppliers realizing that scan-based trading where they own the inventory, they manage the inventory, they stock the store, they destock the store, several large suppliers are coming to a very interesting conclusion that scan-based trading in that circumstance is not a punishment, it's an advantage. So think of it this way, suppose you are a -- I'm making this up. Suppose you're delivering, let's call it bread. Okay. So you're a bread supplier and you have two retail stores, a mile apart. One of the stores has 500 loaves of wheat bread that you put in. It is getting toward the end of the week and you absolutely know they're not going to sell more than 100 loaves. Well, let me tell you the problem. You're about to literally eat it. So if you own the inventory, instead of the retail store owns the inventory, guess what you can do? Take it, out move it and put it in the other store that needs the inventory. So in other words, if you're a supplier owning the inventory is not painful, it's an advantage, it's yours, pick it up and move it. You don't have to check it into the back of the store, it saves you labor, gasoline and time. So you literally become more efficient in your route business simultaneously with having greater control. So we think over time a number of suppliers will recognize this is a great strategy and it's pretty easy to go to the retailer and say oh by the way, you don't have to pay for my inventory until you sell it, it's your unconsignment. So tell me what retailer would say no to that idea, exactly none. They all love the idea. So it's a big thing. You'll see is constantly increasing our lines of credit. But you'll actually see the amount of debt outstanding at the end of a quarter typically remaining about the same. So that's kind of not anything important. And the other question was…

[Walter Schenker:]

Wholesaler or retailer?

[Randy Fields:]

Oh, yes. The one of the big accounts that we've signed some big retailers and recently also some wholesalers. So I don't want to be any more specific. I'm being evasive. Can you tell Walter? I don't want to talk more about it. But there will be, yes. But there's more to that story than we've said so far but more of that information will come out in the next few months.

[Walter Schenker:]

And lastly to allow you to be most evasive, double digit sales ranges from 10% to 99%?

[Randy Fields:]

It will be somewhat less than 99%. I'm confident, it will be less than 99%. I'm actually equally confident it will be more than 10%.

[Walter Schenker:]

Okay. Thanks a lot Randy.

[Todd Mitchell:]

Let me answer that. I'm confident that it will be at a level which you can still consider us a growth company.

[Randy Fields:]

For sure.

[Walter Schenker:]

Okay. Thank you.

[Randy Fields:]

And Walter, because I know you are one of those guys that is sort of like bottom-line. It's really important that is a company for our customers and frankly for shareholders that we focus on the growth at the bottom-line. You will like that.

[Walter Schenker:]

Okay. Thank you, Randy.

[Randy Fields:]

Thank you, guys.

[Operator:]

And ladies and gentlemen at this time there are no further questions. And that also does conclude our conference for today. Thank you all for your participation. You may now disconnect.