Park City Group, Inc.
Q4 2016 Earnings Call Transcript

Published: 13 Sep 2016

[Operator:]

Good day ladies and gentlemen and welcome to the Park City Group Fourth Quarter and Year End of the Conference Call. Today’s call is being recorded. And now, it’s my pleasure to turn the floor over to David Mossberg. Please go ahead, sir.

[David Mossberg:]

Thank you, Catherine. 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. And also I'd like to remind that this conference 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 historical facts. Such forward-looking statements are based upon the 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 those 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 Randy Fields, Park City Group’s Chairman and CEO; and Todd Mitchell, Park City Group’s CFO. I will now turn it over to Todd.

[Todd Mitchell:]

Thank you, Dave. Good afternoon everybody. It was a great quarter for us, capped off a real strong fiscal year. We exceeded our internal targets for fiscal 2016 for both revenue and profitability. And I would note both revenue growth and profitability got aggressively stronger over the course of the year, clearly demonstrating both accelerate in the business and operating leverage in our business model. I want to highlight that my comments on the financials today will be focused on out pro forma results, that is as if we had owned ReposiTrak in the comparable period a year ago. This is because we believe this gives a more accurate view of the underlying performance of our company. However I also want to remind you that as we are anniversaring the acquisition of ReposiTrak this will be the last quarter we will be giving this pro forma comparison. Revenue, fiscal fourth quarter revenues grew 29% on a pro forma basis to $3.8 million from $2.9 million a year ago. This was the highest quarterly growth rate in fiscal 2016. Fiscal fourth quarter results drove a 21% increase in full year revenue on a pro forma basis to over $14 million from $11.6 million in fiscal 2015. This was better than our internal expectations, with upside in the quarter and the year driven by real strong results at ReposiTrak. In short we believe we have reached an inflection point with ReposiTrak with regards to market adoption. As a result of the accelerate in fourth quarter, we ended the year with over 10,000 supplier connection, which was better than expected and drove 300% increase in supplier [ph] subscription revenue for ReposiTrak in fiscal 2016. Going forward, we expect overall revenue growth to accelerate in fiscal 2017 from fiscal 2016 pro forma level. Profitability, fiscal fourth quarter net income was $498,000, this was up materially from fiscal Q2 and fiscal Q3 levels and compares to a loss of $4.7 million a year ago on a pro forma basis and a loss of $2.4 million on a reported basis. As a result of upside in 4Q, full year fiscal 2016 net income was $667,000 which was well above our internal expectations. Going forward we expect profitability to scale materially in fiscal 2017 from fiscal 2016 levels. Expenses, total operating expenses were $3.3 million in fiscal fourth quarter and $13.3 million for the full year. This was down 57% and 33% respectively from pro forma comparisons in fiscal 2015 with double-digit declines in every category for both the quarter and the fiscal year. Cost of service declined 20% on a pro forma basis in fiscal 4Q to 1.1 million from 1.3 million a year ago and 19% for the full year to 4.3 million from 5.3 million. This was due primarily due to cost savings and consolidating ReposiTrak and leverage off of investments in infrastructure which we made over past two years. Going forward we expect cost of service to increase at a modest pace in relations to revenue growth to continue to fall as a percentage of revenue. Sales and marketing, sales and marketing declined 27% on a pro forma basis in fiscal fourth quarter to 1.3 million from 1.7 million a year ago and 17% for the full year to 5.4 million from 6.5 million. This decline was primarily due to lower marketing expenses associated with the core supply chain business and relatively flat marketing expenses associated with ReposiTrak. Going forward, we expect sales and marketing expenses to fall as a percentage of revenue, as we transition our supply chain business model to a lower touch application sale [ph] via our portal strategy and as we expect to benefit from increased market awareness about ReposiTrak’s strong value proposition. General and administrative expenses declined 39% on a pro forma basis in the fourth quarter to $848,000 from 1.4 million a year ago and 29% for the full year to 3.2 million from 4.4 million. This decline was due to substantial savings which we achieved in this category from consolidating ReposiTrak as well as ongoing efforts to run our businesses more efficiently. Going forward, we expect to see positive impact of lower G&A expenses throughout fiscal 2017. Lastly G&A was a 125,000 in fiscal 4Q and just over a 507,000 for the full year, both down substantially from the year ago. From the Cash flow and liquidity, we ended fiscal '16 with 11.4 million in cash which was up modestly from 11.3 million at the end of fiscal '15. Importantly cash flow trends improved aggressively over fiscal '16 with profitability. Going forward just as we expect profitability to grow substantially in fiscal 2017 we also expect to generate progressively higher free cash flow. That concludes my review of the financials for ’15 -- for fiscal 2016. Now I'll turn the call over to Randy for more exciting qualitative update.

[Randy Fields:]

Thank you, Todd. I'm going to read my comments again, now this is only the second or third time that I've done that, and as you know there's somebody running for President who is now been constrained to a teleprompter. So, I understand his pain. So, I'm going to read my comments. It's worth staying around till the end because we're going to do something new that we haven't done before. We're going to give you some interesting goals and hopefully milestones for the current fiscal year that I suspect as investors hopefully you’ll find interesting to know, hang around even if my reading is a bit on the boring side. As Todd said fiscal '16 was a terrific year for us, ReposiTrak reached a tipping point in terms of market adoption and I think importantly the company did pass, and here comes that term, inflection point, in terms of accelerating our growth profile and transitioning the GAAP profitability. Perhaps the key phrase for last quarter and last year was inflection point. There is five issues I would like to raise for you to take in to consideration from this call. First, we did exceed our own internal forecast for 2016, both on the revenue side and more importantly on the bottom line profitability side. As you know we set an objective primarily to make sure that our customers feel comfortable with our financials of becoming GAAP profitable in fiscal '16, so we are very proud of that achievement. But as you saw in the fourth quarter and certainly as we announced well into the first quarter of our next fiscal year, we are clearly showing much faster revenue growth and the earnings leverage that we believe is apparent in our business. Secondly, we successfully scaled and accelerated the growth of ReposiTrak. As Todd mentioned fiscal 2016 revenue for ReposiTrak was up about 300% over fiscal '15 in pro forma term. This is the function of both the increase of the number of Hubs that we were adding, but equally it was a function of the number and ways that we were able to connect with the suppliers associated with those Hubs. We’re beginning to see the efficiency of a network effecting in having more Hubs, and what that means for us as a company and U.S. investors is that every time we add now a new Hub, the opportunity for the number of connections that each of those suppliers have increases. So in fact we are beginning to see very substantial scaling efficiency inside the business. Importantly, largely because I suspect the regulations of beginning to take an effect and people are now well aware of their increase liabilities and risks. We are seeing an urgency on the part of Hubs that they want to much faster adoption rate than we’ve historically seen. We mentioned recently that where normally it would take three to four years to get all of the suppliers of a wholesaler or retailer on the system, we have established a new methodology and new urgency by these Hubs to get it done in less than a year. That has two impacts, one, it substantially reduces the risk of our Hubs at a much faster rate than was the case before. And then importantly for us that obviously it's still earnings to our revenue. I think it's important to appreciate and we talked about infrastructure two years ago and that it was very important to us that we have a level of infrastructure that would support a faster growth rate. And as you noticed our expenses decline in the last fiscal year -- fiscal '16 compared to prior years, and that’s largely because that infrastructural stuff that we did, all of that investment is now behind us and it enables us to add thousands and thousands and thousands of suppliers much more easily and more efficiently than we would have had we not made those investments. So the payoff is here and the payoff is now for what we’ve done from an infrastructure perspective. I think important to understand because we have always talked about our growth rate in relation to the efficacy of what we do. And what that means is that the most important stakeholder and Part City Group or our customers, and not only from a supply chain perspective but equally from a ReposiTrak perspective. We are terribly concerned that our customers get what they are in fact looking for which in case of ReposiTrak is a reduction in their risks and the compliance at their supply chain as a result of ReposiTrak and what we do should go up. And I am proud to say in spite of the fact that we have added as you know last year thousands more connections that in fact the compliant continues to improve and our focus internally and culturally on getting compliance for our customers. This is the very same high level that we’ve always wanted. With that mean, it means we are now able to grow faster than we have before, without losing size of the primary objective of actually delivering the right value proposition to our customers. They want compliance and we’re delivering that. So what's happening in addition is not only our Hubs experience a reduction and risk, but I think importantly we are also enabling them to do compliance work, to make sure that their supply chains are safer and what we believe is a more regulated world than they have experienced before. We are actually enabling them to do this at a lower cost than they would have before. IN fact there is an interesting incident from one of our Hubs, that told us that recently that they used to have four people in total doing this kind of compliance work manually and with the advent of full deployment of ReposiTrak they were able to reduce that to a single person. So not only does ReposiTrak have as we had hold, the salutary impacts on the compliance level of our customers supply chain, but importantly it helps them reduce their cost. So if we start to look out a little bit, few things are happening that are we think of critical importance to us as investor [indiscernible]. We are expanding our ReposiTrak offering, what we mean by that is that there is a number of other, call it food safety application, are in development and just about to be released. What that will do is to expand our market opportunities, increase potentially our revenue, but equally it would make us even more attractive to the supply chain for food safety adoption. At the same time we have begun already to move from what we call first level suppliers, meaning suppliers who primarily supply retailers and wholesalers to second level suppliers to in fact supply those suppliers. So two things are beginning to occur, both of which will help us grow our ReposiTrak business. If we are going deeper into the supply chain with our capabilities and secondly we are expanding our offering which increases our revenue per customer. As Todd had mentioned last year when we did the summary, fiscal '16 and still continuing is really the year of convergence. When we acquired ReposiTrak as you know it, it was managed as quite a separate business. That meant that there is a great deal to be done to integrate the culture, the technology, et cetera. So that we have a single combined ReposiTrak Park City Group opportunity. I am now pleased to say that Park City Group and ReposiTrak are fully integrated operationally from sales to billing. We have just about completed the engineering necessary to deliver Park City Group applications via ReposiTrak’s portal. So in the course of the next few months we hope to have the fully integrations completed and we think that position makes [ph] for some very exciting growth going forward. So let's look at the current fiscal year, fiscal '17. We are very confident that our financial momentum will continue to accelerate in fiscal '17. Growth will accelerate meaning the topline rate of growth and go up, and profitability will scale a lot. ReposiTrak will be an important driver, but it’s significant to note that the rest of our business, the supply chain business as we’ve called it, our core business historically is also going to grow faster this year than last. And on top of all of that we have several new suites of applications that we will be bringing to market. So it's fair to say that at the moment we are hitting on all eight cylinders from a management perspective of how the business is doing. So if you net that out we expect fiscal '17 revenue growth rate to exceed our fiscal '16 pro forma revenue growth rate of 21% by a very substantial margin. I know that when we chat from a year from now that we'll all be pleased looking back at how '17 turned out. Our overall financial growth will be underpinned by continued triple digit growth in ReposiTrak revenue. We expect to continue to add Hubs at an accelerated rate and we're going to see further benefits with regards to more rapidly converting these new Hubs to full deployment over a much shorter period of time as been the case and that has the impact of much more rapidly accelerating our revenue. With higher revenue growth rate as we've also told you profitability will scale substantially. I would set as an objective that this year when the year is over that we have double-digit net income margin and very meaningful free cash flow. If we take a look further out in '17, take a five year view of the business, we have a five year view of the business that we continue to drive we think very high shareholder return. ReposiTrak is on its way to becoming the dominant platform for the food industry and what that means for us is that we can see a clear path from where we are to over a 100,000 supplier connections and tens of millions in revenue in the next few years from ReposiTrak alone. Through the conversions of the business we'll expect to be able to leverage ReposiTrak's growth and pull through many of our other application. The implication for that obviously from a total revenue and total profitability is stunning. We're seeing strong interest in these other apps from both Park City Group and ReposiTrak customers and what we believe the net result is that both are total addressable market, the market opportunity and our own higher level of growth and rising profitability will extend well beyond 2017. Okay, so now let me give you some fun thing, this is -- if we like how this work as you know we don't do guidance but we're certainly going to share with you in the next few seconds some goals that we have for this year and what we hope to do is to achieve all of these goals and demonstrate as we have historically that we're pretty good at setting goals and achieving. So, what's the year look like? We're going to end this fiscal year with north of 20,000 connections, we're going to have faster topline growth than last year's 20% and I think it's fair to say by anybody's standard when you see it you'll consider it to be very much faster. We're going to have our first $4 million revenue quarter. We're going to also have our first $5 million revenue quarter. Every quarter this year will be GAAP profitable. I’ll say that one again, every quarter this year will be GAAP profitable and in conclusion one of the quarter's this year will have a net income that exceeds $1 million. So, we're there, we did go past that inflection point, we feel very good about both the topline growth rate that we're going to experience, but very importantly for both our customers and we know for you as shareholders, this will be a business that over the next several years which will demonstrate the earnings leverage, the potential in taking great care of its customers. The team has worked extraordinarily hard to deliver the results that we delivered last year, I could not be prouder of them then I am. Lots of hard work, blood, sweat and tear because we knew it's important to our customer base that we demonstrate the ability to be GAAP profitable. We certainly did that and from where we are now if you watch the business scale I think we will all be pleased with the economic results that it will produce. So that’s it, let’s have a few questions.

[Operator:]

Thank you. [Operator Instruction] And we will take our first question from Walter Schenker.

[Walter Schenker:]

I always feel obligated to ask the same question, which is could you give us a little more color on the non-food safety historic side of the business, the progress it’s making? And part three, when we start to see the synergy of all of this food safety contacts helping you sell more of the traditional inventory management?

[Randy Fields:]

Got it. Yes, we almost didn’t speak about it and it makes me feel like I have a red handed step child, I sat that every phone call, I feel terrible about it. But the growth rate of what we used to call the core business which isn’t fair to say anymore, but the supply chain business last year was I believe one of the faster years on record, this year will be a very significant growth rate faster yet. And there is lots of new products in it. And indeed there is some changes to how we are doing that that make it easier to adopt and easier to implement, Walter. So it enables us first to sell somebody ReposiTrak and then how do I say this, once somebody is in ReposiTrak they can more easily adopt the pieces that we have created for the supply chain. We have just broken it down and the easier to swallow discreet pieces. So far the response that we are getting from people that we have shown this to has been very high, so honestly this will be I’m guessing and please don’t hold me to this, but I believe that this will be the fastest growth rate we’ve ever seen in this old supply chain business. The year that we are in, fiscal '17. So we are hitting on all eight cylinders, it's pretty interesting.

[Operator:]

Thank you. Our next question will come from Steve Bell, Private Investor.

[Steve Bell:]

I want to follow up on a couple of things here with you Randy, did you just say that the end of this fiscal year which we just completed here, we have 20,000 connections currently.

[Randy Fields:]

No, no, no the fiscal year that we are in, which will end next June of '17. June of '17.

[Steve Bell:]

Okay, you talked about we’re starting to see traction in first and second level suppliers, what categories broadly speaking are we seeing the greatest traction in?

[Randy Fields:]

Absolutely, everything. It's unbelievable, everything, no exception.

[Steve Bell:]

Okay, okay.

[Randy Fields:]

[Indiscernible] I was just joking [ph] you.

[Steve Bell:]

Not only are you reading from a script, but now you are coughing like Hilary.

[Randy Fields:]

I read like Trump and I cough like Hilary, terrific.

[Steve Bell:]

How would you describe the traffic that we are getting from the SQF data base, because obviously that’s going to drive a lot eyeballs here and hopefully expose people to not only ReposiTrak, but the Park City Legacy side? But can you give us some metrics on what type of traffic patterns are you seeing?

[Randy Fields:]

I can't give you any metrics yet because it's actually -- literally today the announcement went out to the SQF users of the cutover to ReposiTrak. So over the course of the next six to eight week eyeballs will be on the side.

[Steve Bell:]

Okay and you will be tracking that?

[Randy Fields:]

Yes, and I think the best way to describe where we are is to say, and we haven’t seen these press releases yet, but we are obviously most to the way through a quarter. We have a very deep pipeline, we have a lot of incoming business. And once again we are in the execution mode. So we can take what comes to us and I could not be more pleased with the efficacy of how we actually do what we do. The customers very much appreciate what we are doing, in fact I'll give you another little tit-bit. Two of the top five retailers in the U.S. will be customers of ReposiTrak in the current fiscal year. So even some of the big names guys have found that they need what we do. So it's -- this is a case where the initiative is to make sure that the execution is based right on the track that we are on, that the quality of the result is maintained, because it is hard for me to imagine if we go out in our time machine one year from today nobody looking back at '17 is going to say you should have grown faster. I think everybody that cares about growth rate, profitability and most importantly customer delivery will be thrilled with how this year goes.

[Steve Bell:]

Okay and when -- obviously we are focusing the [indiscernible] through the safety marketing act, but what do you think or when do you think we might begin to see some traction in the foreign supplier verification program?

[Randy Fields:]

How today sound?

[Steve Bell:]

[Multiple Speakers] Enquiries?

[Randy Fields:]

Yes, I literally was on a phone call with a prospect earlier today over the foreign supplier verification. I think people are -- look if you were to say three years to now, what's that mean, yes the foreign supplier verification rule is problematic for everyone. The one that’s hidden that people hadn’t thought about is the so called sanitary transportation rule, and the reason is the industry negotiated a deal with the FDA on that rule that they thought gave them cover, but I personally believe and I think it's likely to be the case, causes more problems than solves problems. Here is what it said, it says that if you put your food on a truck and move it, meaning dredge [ph], now that truck -- you have to have a contract with whoever provides you dredge to make sure that they wash the truck after food has been in it and under certain circumstances --.

[Steve Bell:]

And it's kept refrigerated for the whole --.

[Randy Fields:]

That's it’s kept refrigerated, and that all sounds great, doesn't it? And all you really have to have legally is a contract. Well now ask yourselves the question, do you think a lawyer when you say by the way, yes a few people got really sick and it's because the truck wasn't washed, do you think the lawyer will say well you’re off the hook because you had a contract, that the guy had to wash it? No, the lawyer is going to say did you supervise to see that the contract that you had in place was being effectuated. How do you know that they were washing trucks? And you go, I don't know, I just trusted them. Really? Take your wallet out. But the truth is virtually every truckload of product that’s moved is going to require some kind of a piece of electronic paper to show that it got washed properly. What we see which is pretty amazing, is that the food industry which has been regulated is about to become really regulated and it will look like the wild-wild west was evolving quickly to a highly regulated paper driven, compliance driven environment and people are waking up to it and frankly it's been enormously beneficial to our business. So, we have years ahead of helping people cope with all of this kinds of stuff. Here's another example, one of our customers said, I'm a ReposiTrak user, I love what you guys do, I have an interesting problem. What's the problem? I've this warehouse where I have, hang on to your hats folks, 5,000 rodent traps. 5,000. 5,000 rodent traps and what happens is every week a guy has to march around looking at each of the traps, scanning the number, which trap number, 1173, and then if there's a creature in it, he has to remove the creature and take a mug shot of the creature and record that, yuk. And it's all been done on paper. Not anymore. ReposiTrak now enables him to take a click of the creature, automatically logs it and enables him to maintain control over their 5,000 rodent traps. So, the deeper we get into this the more extensive our reach becomes and the more attractive we are to people for adoption. So, honestly our customers love what we're doing for them and we almost -- we have a [indiscernible] right now, things are very good.

[Steve Bell:]

Okay, I'll take another tangent. How many pilots do we have underway currently either on the legacy side of the business or perhaps on ReposiTrak side?

[Randy Fields:]

We call that the dreaded P word, and --.

[Steve Bell:]

Like in last September?

[Randy Fields:]

Well yes, and there's more than two little pilots that we're doing today, that have a very significant upside potential, but I won't say more than that and I'm not trying to be a tease, but that’s it. We never do a test with ReposiTrak, you either do it or you don’t.

[Steve Bell:]

Okay.

[Randy Fields:]

Steve, one more then we should go to somebody else.

[Steve Bell:]

I’ll hop out and if there is any other questions I’ll just ring up Todd or you directly.

[Randy Fields:]

No problem.

[Operator:]

Thank you very much. And our next question comes from [indiscernible] with SWR.

[Unidentified Analyst:]

I have been a shareholder from many, many, many years I never got on a call before and I haven't asked a question and I don’t intend to, I just want to say thank you, and I really mean that. This was a kind of a conference call every shareholder waits for and I say thank you for a couple of reasons, one, for your logical, precise and organized and conservative manner which you took this company along because you grew at a rate that assured success in the future and I for one appreciate that very much. So again I never get on these calls for any reason, but this time I just want to say thank you and I really do mean that.

[Randy Fields:]

Paul thank you, that’s very much appreciated. I’ll tell what we also appreciate, we appreciate the fact that shareholders have been patients that they want to know more about, we call at the story. What we have said to people is that it is critical that the customer gets the result that they are looking for, it’s the customer's result that matter. And we have delivered enough of that now on the supply chain side of the business, on the ReposiTrak side, that our market reputation is superb and I don’t mean stock market reputation. I mean the market that we serve. Today, literally today, we signed a contract with one of the most successful grocery retailers in the world who does everything internally, everything. And they came to us and said we are having the problem with ordering and we heard you guys are really good. We want to try something with you. So our reputation amongst the community this -- and I don't mean this is a slight, it’s most important our customer community continues to grow. And I think it's showing up in the numbers, their growth rate will continue to go up for us and again the constrain well is now, has been and always will be, let's not run faster than we can deliver a quality result to our customers. So thank you guys to your patients. Thank you Paul.

[Operator:]

Thank you. We will continue on to Mark Stafford from Stafford Capital.

[Mark Stafford:]

Hi Randy and team. I was just wondering is there any updates on the insurance and pharma part of this equation?

[Randy Fields:]

Yes, it's a good question Mark. Because of all that we have going as much as anything plus the slowness of pharma, we are just not putting any real resource against growing it. So it's chugging along, hasn’t gone away, hasn’t gone anywhere. But they are very slow, very laborious so we are just trying our other fish so to speak. And as you know when we first did that in spite of the fact that the big opportunity, I was never terribly optimistic as to whether or not we would be able to convert it into money. So we’ve converted a little into money, but I am -- there are just other things we should be doing first. We certainly from a first perspective should be doing more than we are today and hopefully we will be doing soon is food service that’s another enormous market potential for us. So food service is coming. The insurance thing is moving along in an interesting way, I can't talk about what we are doing but it's fair to say there is yet another interesting relationship that we are putting together, and again as a reward for our customers, not an incentive, as a reward for being a good citizen we think that the insurance program will be in the long run really beneficial to our customers set. In truth right now we don’t have a lot of time to go market it to our customers, but its available and it's about to get some profile with yet another partner being brought in. So there will be more about that over the next few months, might not be until midyear that we talk about a lot Mark.

[Operator:]

Thank you. We will take our next question from John Evans with [indiscernible] Capital.

[Unidentified Analyst:]

Yes, congratulations on the quarter. I was just curious that this last fiscal year, you grew your revenue sequentially every quarter. So is that kind of a new trend now that you have with the pipeline in the business, so as you go to '17 should you kind of grow sequentially or is there any kind of seasonality we should be aware?

[Randy Fields:]

There really is still seasonality. I'd love it to be sequential, it just won't be until and I have always thought this my numbers never changed. When we’re doing north of $5 million a quarter, I think it will be more sequential than it is today. So as excited as I think Todd and I are over last year being sequential, I wouldn’t hold out hope that there will always be that way. And the reason it honestly has to do with our customers, remember we are driven by retailers and wholesalers and they are seasonal, their fourth quarter and their summer sell, once we get to scale here, to more scale than we have and I think $5 million, $6 million quarters I think you will see the sequentialness increase.

[Unidentified Analyst:]

May I just have a follow-up, so can you talk a little bit about G&A expenses as a percentage of revenue? You are kind of in that 22% give or take area and I’m just curious as you go into next year and you start to see this acceleration, where do we see the leverage in the P&L? Is it on the cost of services, is it the sales and marketing or is it the G&A? Can you help us with how you see the model evolving over time?

[Randy Fields:]

Yes, I think the best way to imagine what we are and a lot of fast businesses don’t perform this way, I don’t know why. We are really a high fixed low variable cost business, what you will see going forward is 80 plus percent of revenue increases in dollars become something called profitability.

[Unidentified Analyst:]

Got it. So that’s kind of the incremental margin right?

[Randy Fields:]

Right and so as a result it's fair to say that all expenses other than sales expenses which are directly related to sales, even though if they go up somewhat in dollars, will not go up at nearly the rate that revenue growth would.

[Operator:]

Thank you. And our next question will come from [indiscernible].

[Unidentified Analyst:]

Quick question how's the CVS [ph] build out going?

[Randy Fields:]

Well we hate to talk about individual customers. So let me do it in different terms. I think it's fair to say that our two largest customers, I'll let you figure out who they are, are accelerating dramatically. Literally, I wish there was -- I don't like to give an unbalanced view of the world, I sound like Fox News. I'd rather say jeez there are some problem areas, our biggest accounts, the ones that, it's fair to say, boy you're fully deployed, what's left are both growing very rapidly. And it's a result of the team doing a tremendous job at helping them with additional projects. So, our two biggest accounts, I think I just answered your question. Our two biggest accounts are both growing very rapidly.

[Unidentified Analyst:]

Well that’s good news, and my second question. Last year you talked about developing the app that would allow customers to just add services as needed. And I just wondered where that project was?

[Randy Fields:]

Yes, we call that The Portal and the idea of The Portal is that our customers for anything that we do, we’ll be able to go in and self-implement and buy if you will or try any of our other applications. And so the engineering work is proceeding rapidly, probably we're more than half way done with that as a view and over the course of the next couple of months our customers will experience the -- we call it the portalization of our product line and we're terribly excited about it. As I said, it’s taken some engineering work and some thought work in terms of how to breakdown very big things into much smaller bite sized pieces, but I think we're pretty nearly there. So, in fiscal '17 it won't make much of a contribution. We don't need it. '17 is -- I'm looking at Todd right now, I wouldn't say it's baked, but it's pretty baked. You're shaking your head Todd, yes. Todd ever as a skeptic says yes, '17 is baked. So, the contribution from all of this will moving into '18, but it ought to give us another wonderful up leg in what we’re doing.

[Operator:]

Thank you. Let's take a follow-up from John Evans with [indiscernible] Capital.

[Unidentified Analyst:]

Just real quick, can I just ask you a couple like housekeeping questions, do you expect to have any kind of tax rate in '17?

[Todd Mitchell:]

No.

[Unidentified Analyst:]

And then can you just talk about the dividends on the preferred, they were up 28% in '16, do you expect that kind of increase or do they level out here?

[Randy Fields:]

Well what happens is that the company, not the holders, the company has the option of picking it. So, that it can conserve cash. And we've -- as you will see with some announcements here, this year as I mentioned earlier, some big -- some large retailers, we need cash on the balance sheet optically to get everybody, call the customer comfortable, that we're very strong financially. We are --.

[Unidentified Analyst:]

So, you pick it again right, basically in ’17?

[Randy Fields:]

We haven't made the decision yet, but what we want to have is an optical balance sheet from a cash perspective, GAAP profitability. So, that our customers get -- they're making a lifelong decision about Park City Group and that's critically important to the sales effort.

[Unidentified Analyst:]

Got you. And then just a last question, the share count was up about 10% year-over-year, do you expect that increase to with options and stuff or?

[Randy Fields:]

No, you will see that slowdown pretty dramatically on its own.

[Unidentified Analyst:]

Okay. Thanks so much.

[Operator:]

Thank you. And we have a question from Gary [indiscernible].

[Unidentified Analyst:]

I wanted to ask about your Hub announcements, what is your policy for announcing new Hubs as the quarters proceed?

[Randy Fields:]

Yes, we think it is important to a Hub to do a press release, so his suppliers understand that they are making a commitment publically to the use of ReposiTrak to improve their compliant standing. We think it helps the Hub to do that, to get adoption in its supply chain. However, having said that there are people in the business that just don’t want to talk to the press or do anything that looks like a press release. So we believe it's helpful, not to us, I mean obviously it's nice for you to know, et cetera. But it's much more important for the suppliers of the Hub to know that, oh my god, the guy I am doing business with, this must be important, they’ve gone to the press. So we encourage it, but it’s not mandatory and therefore we add Hubs that are not announced.

[Unidentified Analyst:]

I see you average about 350 connections per Hub with 28 totals, according to your announcement, are you finding your connections are getting larger with each Hub as you go forward, or are they staying about the same?

[Randy Fields:]

Our average per Hub is closer -- each new Hub brings us closer to 1,000 connections. What you are seeing is our penetration within the Hubs at varying levels depending on how long we had them online. And as I said, in the last quarter we just switched to what we are calling a central billing model which will get us to a 100% penetration in most cases within a quarter or two. But previously we were building it organically acquiring those connections organically. So that 300 is an average across the portfolio in terms of penetration of about 45%. Plus we have another problem Gary, which is that to think about, as we add suppliers as Hub they might only have 30 suppliers. So averages are going to mean zippo going forward. We wish they did but they won't, we’ve have got this clear of the mean [ph], head’s in the oven, feet in the refrigerator, on average the temperature is okay.

[Unidentified Analyst:]

You have a goal for a number of Hubs for 2017?

[Randy Fields:]

The answer to that is we have a couple of different goals with regard to what we call suppliers Hubs and our retailer and wholesaler Hubs. We are not giving that out because we think the better metric now is not even a connection, it's -- we make that ambiguous for you. But you will see it all show up in revenue growth and profitability.

[Operator:]

Thank you. With no additional questions in the queue, I would like to ahead and turn thing back over to our speaker for any additional or closing remarks.

[David Mossberg:]

Thank you all for participating and your interest in Park City group. Our numbers are in the bottom of the press release, please feel free to contact any of us if you have any additional questions.

[Randy Fields:]

Thank you.

[Operator:]

Thank you. You are welcome. Ladies and gentlemen that does conclude today's conference. Thank you all again for your participation.