Park City Group, Inc.
Q2 2015 Earnings Call Transcript

Published: 6 Feb 2015

[Operator:]

Good day, ladies and gentlemen and welcome to Park City Group Second Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today’s program is being recorded. I would now like to introduce your host for today’s program, Mr. Dave Mossberg, Investor Relations representative. Please go ahead.

[David Mossberg:]

Thanks, Jonathan. Before we begin, we will be referring to today’s earnings release, which can be downloaded from the Investor Relations page on the company’s website at parkcitygroup.com. I also want to remind everyone 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 fact. Such forward-looking statements are based upon the current belief and expectation of Park City Group’s management and are subject to risks and uncertainties, which could cause actual result 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. Throughout today’s conference call, we may be referring to both GAAP and non-GAAP financial results, including the terms free cash flow, EBITDA, adjusted EBITDA, net debt, net income and loss and earnings per share, which are non-GAAP terms. We believe these non-GAAP terms are a useful financial measure for our company primarily because of the significant non-cash charges in our operating statement. There is a reconciliation of non-GAAP results in earnings release and on the Investor Relations section of our website. Our speakers today will be Randy Fields, Park City Group’s Chairman and CEO and Ed Clissold, Park City Group’s CFO. Ed?

[Ed Clissold:]

Thanks, Dave. Good afternoon, everyone and thank you for joining us on the call today. My remarks will cover our consolidated operating results for our fiscal second quarter ended December 31. And I will also comment on certain cash flow and balance sheet items and then I will turn the call over to Randy for his concluding comments. I will begin my comments by discussing revenue trends. For the second quarter ended December 31, subscription revenue increased 16% to $2.7 million, which was another record for the company. Breaking out ReposiTrak related revenue from the comparison, our supply chain management services business grew 19% year-over-year, also reaching a record level. Other revenue was $759,000 for the quarter, which is a 12% increase from the same period last year and represented almost – or represented approximately 22% of total revenue. We continue to expect contribution from other revenue will remain at approximately 20% to 30% of our total revenue. Overall, total revenue increased 15% to $3.5 million, which is also a quarterly record. Moving on to operating expenses, total operating expenses were $4.1 million, which was an increase of $470,000 or 13% year-over-year. This increase in cost was primarily related to an increase in sales and marketing expense. The increase was above our targeted range for the quarter, but was 6% for the first half of the year, which is in line with our expectation of a 5% to 7% increase this year. At the end of December, our headcount was 71 which is up from 66 the same period a year ago. Now, touching on profitability, on a non-GAAP basis, which excludes non-cash related expenses, we posted net income of $120,000 or $0.01 per share versus a non-GAAP net loss of $99,000 or $0.01 per share during the same period last year. Adjusted EBITDA increased 94% to $394,000 year-over-year. GAAP net loss for the September quarter – for the December quarter was $541,000, which was relatively flat in comparison with the prior year. The improvement in profitability was indicative of the operating leverage in our business. As sales growth continues, it should more than outpace the growth in expenses and result in a bottom line that is growing at an even faster pace than the top line. And now to cash flow and financial position, overall, our balance sheet is in great shape. At the end of the quarter, we had $2.3 million in cash and $1.7 million in debt. The AR balance reflected days sales outstanding of 78 days versus 71 days as of the end of last quarter and compared to 85 days at the same time last year. Based on the timing of our billings, our AR balance can fluctuate significantly from our targeted range in the mid 70s. During the first half of the year, we turned the corner on free cash flow generation turning from negative to positive. During that period, we generated $545,000 in free cash flow as compared to an $895,000 in cash burn during the same period a year ago, which is a $1.4 million improvement. In the first half of the year, we spent approximately $350,000 on CapEx, approximately $500,000 on CapEx this year. The bulk of which is related to a major upgrade to our systems. As our revenue and earnings continue to ramp, we expect to be cash flow generators this year. And with the current strength of our balance sheet, we have more than adequate liquidity to fund our growth plans. That concludes my review of the financials for the fiscal second quarter. I will now turn the call over to Randy.

[Randy Fields:]

Thank you, Ed. Lot of ground to cover today, lots of I think interesting information, especially if you saw our press release and we know that there will be a lot of questions at the end. So, to make sure that I cover everything I am supposed to, I am going to diverge from my usual and actually follow a bit of a script. So, here we go, fasten your seatbelts potentially because of the amount of information to be covered, pull up your futons, this may take a while. Okay. What you could see from the numbers that were in the press release, our core business, our supply chain business as we call it for the first six months of the year was up 24% year-on-year. Obviously, we are excited about that. I think two interesting points to make about it, which there I think on what our future looks like. Almost all of our growth comes from our existing customers. So, what that means is if you think about it is our customers like what we are doing for them. It means that it’s producing returns for them and they are expanding the scope of what we do for them. So, that’s a really good sign from your CEO’s perspective. It also means that we are becoming more and more successful with driving into our culture that is customer first attitude, which is helping our customers to achieve an economic return and we would refer to it as sell more, stock less, see everything in our tag line is in fact working. I want to give you a couple of examples of the kind of work that we have done in this most recent period. We have been working with a very large international retailer in one of their perishable departments, in particular its dairy. And we have been working with several of their very largest dairy providers and we were able to achieve the following results which if you know anything about this industry are frankly stunning. An 8% improvement in sales trend, I will say that again, an 8% improvement in sales trend. At the same time a 50% reduction in returns and a 40% to 50% reduction in out of stocks. In addition to that we have significantly reduced in fact you could say virtually eliminated the need for emergency replenishment which are called hot shots, very expensive to put a person and product in a truck and drive it to store, because you ran out of products. Needless to say, this program has legs and it’s rolling out to additional dairies. We are very, very, very proud of our team and the results that we generated. Here is another example. In fact this is the re-introduction of an old product that we had that comes from [indiscernible] days that is being reintroduced into the market because of the level of perishable products that you can now buy in the supermarket world. More than half of the volume today of the supermarket industry comes from freshly produced products in the store, think of it deli, bakery, produce that sort of stuff. So we have a company that we have been piloting with and it’s been rolled out to their system, a small Northwest grocer, very well known in the industry in spite of their size, great perishable products, great bakery, great deli. So the system has been installed for 2 years and generated an average increase in sales of 23% a year for two consecutive years. At the same time, it’s done that. It is significantly reduced like about 23% reduction in their shrink meaning product that was thrown away. So what that means is that we have driven their sales up significantly and we have helped them reduce the amount of products they got thrown away. I don’t have to tell you what that does to their bottom line. So those are just two examples that we have generated here recently of actually helping our customers with our core value which is sell more, stock less and see everything, very proud of the team exceptional results. We are beginning to work in some new categories of merchandise which should expand our footprint. You saw this morning hopefully a press release on working in the area of cell phone accessories. So for people who thought that what we did was limited to perishables, obviously this should take that off the table as a concern. We have also begun several strategic relationships with suppliers that have very large networks of retailers and over the next several years, 2 years to 3 years, it will significantly expand the retail footprint where we are present and obviously that bodes well for our future growth in our core supply chain business. As I look at where we are, we have made some great additions to the team. As you know a couple of years ago I personally felt like we were not touching our customers enough. We were not staffed appropriately and I think that concerned certainly on my part has been a lay, but doing a great job with our customers. They love what we are doing for them. So that means by definition on our core supply chain business, our backlog remains great and the opportunity suggest going forward we will continue to see an acceleration year-after-year in the growth rate of that business. So we feel very, very good about it. Before I get into more detail on the ReposiTrak I just want to give you the probably 200 backgrounder on food safety and why we consider that to be an important part of the opportunity that Park City Group has. Really two things, the issue of food safety is it has obviously a consumer concern and that is the heart of why people care about this. But when there is a mistake, it leads to potential tort and there has been some very important lawsuits over the last several years by tort attorneys that is frankly put the responsibility for bad products clearly not just on the manufacturer of that product, but clearly, clearly, clearly in the lap of a retailer who sold the defective or tainted product. So, it means that retailers are increasingly for tort reasons and wholesalers for tort reasons thinking about issues around product safety. Is the food that we are selling safe? Then in addition as many of you know, the Food Safety Modernization Act is in the final stages of being worded, regulated and rolled out and it’s under a court order. At the level of the Food and Drug Administration, the FDA is under a court order to finalize several major parts of the Food Safety Modernization Act in the course of 2015, specifically in the month of August part of it and in the month of October part of it. So, the biggest change that really comes to the Food Safety Modernization Act and here is a way to think about it and why it for us represents both an opportunity and for the industry certainly a concern. Think of it as Sarbanes-Oxley comes to the FDA. So, the reality here is that increasingly corporate executives are going to feel the weight of a regulatory burden. It’s not just that their company can make a mistake it’s that they can be held accountable for it. So, we along with other industry leaders are beginning to beat the drum, if you will, that there is the need to get compliant, to have visibility to your supply chain, to show the world that you are the good citizen that you want to be, all of those things, the net impact of which is salutary for us as it relates to ReposiTrak. Obviously, as you would imagine, as the deadline is nearing, industry leaders are certainly talking about it more and planning for it more. I want to read you something I know that’s not typical Randy, but I will read you something. This last weekend, Food Marketing Institute, FMI, had what they call the Midwinter Conference. The only people allowed to attend are C-suite executives from the supermarket industry and its attendant suppliers. And this was the keynote speech by the Chairman, the opening speech in the morning for all of the senior executives of the industry that were assembled. This is a direct quote by the Chairman of FMI, who is himself a wholesaler. Here is the quote. FSMA significantly raises the stakes of regulatory compliance. The consequences of being found out of compliance are much more costly in terms of money and reputations. And by reputation, I mean, the possibility of jail time for food retail executives. If they fail to comply through intent or negligence with elements of the FSMA regulation, needless to say, we are getting the industry’s attention with regard to coming into compliance to ReposiTrak is we believe become the industry standard platform for getting visibility and compliance into your supply chain. As you know, it’s very inexpensive. It’s cloud-based service. It’s been endorsed by two of the largest trade associations around the food industry. And the fact is it’s an enormous opportunity. Nobody knows exactly, but there are potentially millions of entities that ultimately need to get connected to give complete supply chain visibility to the food that we eat. As we mentioned recently in a press release, ReposiTrak has really accelerated its on-boarding process in the last several months. Okay, everybody, listen up, here comes the number you are all waiting for. We currently have 1,500 connections inside of ReposiTrak more or less. We said in the beginning of the fiscal year that we wanted by the end of June of this fiscal year, first of July mid-year to have about 2,000 connections. Obviously, we are on track. The number of sign-ups continues to increase. We have smoothed out the systems. We made it easier. We aren’t done yet. So, demand will be increasing. We have gotten better at helping people get on the system and it certainly – it is having the salutary impact on the compliance of people who were on it. I am going to come back to them in a minute. Couple of interesting little, I love giving these little insights in terms of customer stuff. Not everybody that we ask to join ReposiTrak will do it. Interestingly, I don’t know if you read about it, but there was a company called Happy Apples that had a little problem with Listeria and there is a number of people reported dead and then a reasonably large number of people who were sickened by Carmel Apples. Interestingly, this is an example of somebody that didn’t want to go on ReposiTrak and therefore if as a member of ReposiTrak, you would have chosen to not do business with people who weren’t compliant, you would have avoided the problem. So interestingly what we are finding is that when companies get on ReposiTrak in what we call a hub, a wholesaler or retailer engages us. Over the first few months, compliance improved significantly in their supply chain. So not only is ReposiTrak inexpensive, not only is ReposiTrak becoming the industry standard, but equally importantly it actually helps improve non-compliance of a supply chain. Just some observations that I see from where I sit it’s getting smoother. Two things are happening that are to me very exciting. We are beginning to get referrals from people saying this thing has been great for us, I have some people that I want to send to you that’s always good news. In addition, historically we have viewed this as primarily retailer and wholesaler centric and that we thought a few years from now we would begin to get suppliers and their supply chains on. As you have probably seen from some of our press releases in the last several months there has been an increase in the number of manufacturers who themselves have seen that there is value to ReposiTrak. And that ReposiTrak then is showing up in their supply chain. So there is more manufacturer and broker interest in ReposiTrak. And frankly, we had any reason to guess at this stage of the game. That obviously held it. But what’s great for the team is that the larger we get the faster it’s going. I don’t want – business is never easier, but is never easy, but it’s certainly getting easier. We are actively engaged at the moment in exploring the opportunity around prescription drugs. And I think within the next 6 to 9 months we will know whether or not there is actually an opportunity for us there. I think it’s fair to say given the announcements that we have made about the agreements around ReposiTrak and the acquisition of the ReposiTrak stock that we did not have under option which will gives us essentially all of the stock of ReposiTrak. ReposiTrak will be an accelerant to our growth rates in the next fiscal year. So as we begin to report combined results of both businesses, we will see once again an acceleration of the total Park City Group growth rate. Now that I have mentioned the acquisition, let me see what I can say about it. There will be more information filed shortly about it, but for all intents and purposes we are working our purchasing agreements for all of those shares that were not under our option to acquire when we announced that we have an option to acquire 75% of this. The total consideration for doing that will be about 900,000 shares. I think that’s about 5% of the Park City Group outstanding stock. So I think that it’s a very reasonable transaction for us, it’s certainly reasonable transaction for the holders of the ReposiTrak stock. And I think in spite of the change of ownership you are going to see further cooperation between in this case Leavitt Partners and Park City Group. We some other opportunities that we want to try and take advantage of going forward. Why now, several reasons I think it makes the business given how it’s ramping more administratively simple to manage and operate. We need speed, the business is accelerating it’s really important to be as smooth as glass that helps to improve the customer experience. Form a Park City Group perspective we see increased opportunities to cross sell Park City Group services into the ReposiTrak customer base and frankly vice versa. So by having the businesses together it certainly facilitates leveraging across our two sales organizations. They have been quite separate to-date. And finally the fact is that given where it is in time, we think it needs even more attention from management and this gives us the attention space that we need. And I think frankly from a combined entity perspective investors are going to clearly see how ReposiTrak opportunity translates into value ultimately for the Park City Group shareholders as well. So that’s why the timing, that’s why we think this is an important milestone in our development. So, let me just summarize all that yak-yak. Our growth has just begun to accelerate. The next few years now with the two businesses together we have got the core business accelerating on a wonderful basis. ReposiTrak is going to accelerate it dramatically. We are beginning to see the network effect affecting our growth rate, that’s been great. And I think it’s important to note that more and more of our revenue growth in dollars is coming from existing customers, which really implies and from a shareholder perspective hopefully you respect our point of view, which is this demonstrates that our value proposition of enabling our customers and sell more, stock less and see everything is working. In other words, we do a great job for our customers. That’s why we are growing. I know sometimes Wall Street would like us to grow. For us, we grow when we do a great job for our customers. Balance sheet is in good shape. And even though we will be seeing an acceleration in growth, we can fund this from where we are with our cash balance and our internally generated cash flow. Both of the businesses are resonating well in the marketplace. Obviously, I am more optimistic than I have ever been, but I start from a very high level, so things are great. And now, we will open it up to some questions.

[Operator:]

[Operator Instructions] And our first question comes from the line of Amit Dayal from H.C. Wainwright. Your question please.

[Amit Dayal:]

Congratulations, Randy on the great progress and on getting closer to bringing ReposiTrak under PCYG. In regards to – you emphasized in regards to your core supply chain business, you emphasized increasing business with existing customers, what are we doing about trying to get new customers on board? Could you give us a sense of the number of new customers added for that particular business in this quarter?

[Randy Fields:]

Yes, actually I probably wouldn’t break it out for the quarter, but I think it’s fair to say that looking forward I would expect to see the number of retailers, remember, we continued to do our business on the hub and spoke basis, but some of the suppliers that we now work with are in the process of taking us to additional retailers. So, that’s the reverse of how this usually works. Normally, retailers bring us their suppliers. In this case, our suppliers are taking us to more retailers, because they like what we are doing for them. So, I would actually guess the number of retailers with whom we do some kind of business over the next two years will go up by 6% to 10%, which is a pretty significant delta from where we are. So, our objective really is to say every year we want to add more stores to our network and we want to add more suppliers to those stores with whom we work and we want to add more services that those suppliers and those retailers use from us. So, mathematically what that would do and we are considering giving some form of guidance on this going forward, but that would mean that each year, you would be able to take a stab at guessing unless we gave you more comfort than that. How many stores will they add to their system? And so if we add a chain that has 2,000 stores, you would know our average revenue per store, average revenue from all the suppliers we work with in services. And then what would you think the next year’s addition in terms of suppliers and services would be? So, we are going to give – we are working with it internally to see how accurate it is, we want to follow it ourselves for a couple of quarters, but what is happening to the core business is the number of stores will be going up from we call those new customers and the number of suppliers with whom we work will also be going up pretty dramatically over the next several years. So, you will see our growth rate continue to accelerate from where it’s been. Honestly, I think it just gets to be very hard in a business like this in the supply chain business to grow much more than 30%, maybe 35% at the outside and continued to touch your customers as much as they deserve than you should. So, I’d recognize that ambiguous answer, but for the moment, it’s about all I can do.

[Amit Dayal:]

Appreciate it. And in regards to starting to penetrate the nonperishable supply chain, is this one of your first wins outside of the retail space, are we going to see more of this type of business coming into the company?

[Randy Fields:]

I think the answer to that is absolutely we are doing some things that have been unusual like that. Now, that is a supplier rather than a retailer. So what they have done is they really like how we have improved their inventory turns. They like the fact that their out of stocks have gone down and that their sales gone up. So last year we did this in a category called reading glasses or readers. Recently we have done it in the cell phone accessories. We have two or three other categories that we are going to try this year. So the progress of the business will be each year add a few more categories of merchandise where we have demonstrated success, where we can prove, absolutely prove in the case study that it works. Then take that to other suppliers in that category and take it to other retailers who carry that category of merchandise. So what that does is it kind of allows us to have this portfolio of customers where it becomes an opportunity for us to sell more and that’s frankly the reason that the growth rate will accelerate. Each time we discover one of these successes on our part or by the way we have never that I can remember actually had a failure in a category yet. We are pretty conservative about this. But this opens the door to doing that with other kinds of products like cell phone accessories. So we are very excited about it.

[Amit Dayal:]

Got it. And just lastly on the ReposiTrak news, what percentage was outstanding that you require it now, that you already didn’t have an option on?

[Randy Fields:]

Well, the way to think about it is as these agreements are structured it will account for all of the stock other than the stock that we had under option, so that means it will be at or near 100% of ReposiTrak.

[Amit Dayal:]

Great. I am just trying to get a sense of what was…?

[Randy Fields:]

Well, the way to think about it was that if we had for all intents and purposes 75% under option.

[Amit Dayal:]

Right.

[Randy Fields:]

That means that there was only 25% not under option.

[Amit Dayal:]

No I get that, but is that 25% number that was remaining?

[Randy Fields:]

Yes.

[Amit Dayal:]

Okay, so that was...?

[Randy Fields:]

Yes, that’s probably the way to think about it. We used to refer to what is the stub. And so it would all of the – this just means that the company want these agreements and transaction are finalized and closed.

[Amit Dayal:]

And this will show up in your books after July this year?

[Randy Fields:]

Well, yes, that’s safe to say the date by which it has to close is July 1, beginning of our new fiscal year.

[Amit Dayal:]

So we could potentially start accounting for all of this for the next fiscal, immediately…?

[Randy Fields:]

Correct.

[Amit Dayal:]

Okay, got it. And is there a price level for the 900,000 PCYG shares that they receive that we should be aware of or is that something that is to be determined?

[Randy Fields:]

Well, the price has been set with each investor. So it’s – so in other words the impact it’s a set number of shares. And so it’s done if you will that is…

[Amit Dayal:]

Like at current levels, like…?

[Randy Fields:]

Yes, correct absolutely.

[Amit Dayal:]

Okay, got it. Thank you. I will get back in queue. Thanks Randy.

[Randy Fields:]

Okay. Any time, thank you.

[Operator:]

Thank you. [Operator Instructions] And our next question comes from the line of Todd Mitchell from Brean Capital, your question please.

[Todd Mitchell:]

Congratulations on the consolidations.

[Randy Fields:]

Thank you.

[Todd Mitchell:]

90,000 shares is far lower than I thought it would be.

[Randy Fields:]

Thank you.

[Todd Mitchell:]

I want to ask you kind of about some of these operating metrics around ReposiTrak. So 1,500 total signups, can you tell me how long you have been signing people up?

[Randy Fields:]

I think it’s fair to say about a year.

[Todd Mitchell:]

Okay. So there is nothing we can derive in terms of a run rate at this point, can you talk maybe then a little bit about scalability in terms of what could be a potential run rate for the infrastructure that you have in place. And how should we think about increasing that run-rate in terms of how I say it, I mean, there is millions of opportunities. You can’t be doing 2,000 a year. So, how should we think about the scalability both in terms of capacity and in terms of incremental cost?

[Randy Fields:]

Well, I think first of all in terms of millions of opportunities, there is a reality here, which is most of those millions don’t know that they are my opportunity, right. So, we need to let them know and let me describe one other, I think will be a very important relationship it’s about to evolve. So, I apologize for using you as a springboard here. In our last call, we mentioned the fact that we were in conversations with a large insurance company that might offer opportunities around ReposiTrak. I would say, we are far enough down the line that we have begun to set timetables jointly and that if everything moves as planned and as you know with these kinds of things, problems can arise, who knows, but it’s reasonably safe to say that we will be entering into a relationship with one of the largest insurance companies in the world and possibly to the net effect of which will be that for users of ReposiTrak so long as they are compliant that these insurance companies will be willing to pay the cost of ReposiTrak. So, I think in the not too distant future, ReposiTrak will end up being a free service so long as you are a good citizen and however that’s defined, but for now let’s just leave it at that.

[Todd Mitchell:]

Well, that’s great, but I mean that sort of speaks to my question. When they rush the door, how are you not going to get overwhelmed and how are you going to fully leverage this opportunity because they are going to rush the door? And so how can we think about your ability to scale this both in terms of as I said in terms of capacity and in terms of what that means for the operating margins of this business?

[Randy Fields:]

Yes. I think there is – now that we are consolidating it, it gives us a higher level of administrative control, which will improve efficiencies. Two elements to the friction associated with on-boarding. The first is technical. So, one question I can parse your question into two. Will ReposiTrak scale technologically? Yes, no problem, no problem, scale technically very, very well, very easy, because it’s just an adjunct to our current systems. The question then comes down to the inside sales people and your ability to talk to as many people as you need to talk to. And we are scaling that up. We are adding people to it. The cost of which is not a significant margin impingement. So, I think everybody will be very pleased with how that works. So, I think it’s comfortable for us to think of sales cost, if you will, which of these on-boarding costs in the 10% to 15% of sales area going forward. We will know more as we get to it. We are scaling. We are adding some people to it. And honestly, there is much thought as I would like to look at my crystal ball and know how big the door we have to cut in front of the building is to let everybody in as FSMA rolls out I don’t know. I actually have no idea. We are building some capacity. I hate that just by nature I don’t like getting too far ahead of our interference here. Our insurance company partner is talking to us about many, many, many, many, many thousands of possible customers as well. So between us, we will find a way.

[Todd Mitchell:]

So, I mean, conceivably though I mean conceivably looking out 24 months from now, there is not a need to onboard a few thousand a quarter, there is the need to onboard a few 10,000 a quarter. I mean, is that the way we should think about the scalability of this opportunity?

[Randy Fields:]

I don’t think it will go that fast. I think the way it will actually work is as the FSMA rolls out, as compliance increases, as people get more fearful, there will be just constant pressure. So, this year as we said a couple of thousand, it’s going to be, let’s guess, 5,000 to 7,000 the following year, maybe 10,0000 or 15,000 or 20,000 the year after that. It’s going to be over the next 5 years a very significant ramp. Could it go faster? Yes, it certainly could. And there is just no way of knowing it. I don’t know of anyone that has ever tried to connect the entire global food supply chain before. So, here we go. We are trying to do it. And I think we have the technology for it. And I don’t think that the people part of it is terribly difficult. I am more worried about the communication piece, how do we let the world know they have to do this. We are getting more involved with FMI in getting the message to the food community. We are stunned at how little compliance that there is in relation to what’s needed. So, there is a lot of work to be done. And I think it will scale as fast as we can continue to do a superb job at it. That’s publicly, that’s a standard Randy answer to any question about that. So, did I totally avoid answering your question?

[Todd Mitchell:]

Pretty much. So, I guess the last thing I will ask about this is I will ask two questions, but the last thing I will ask on this matter is like, so do you feel that the opportunities out there, did your market talent intelligence tell you of any alternative solutions to your own out there and is there going to be an issue here where if you don’t scale it fast enough, it’s going to increase the opportunity for somebody else to come in?

[Randy Fields:]

I think the answer to the second question is actually no. First of all, this is an incredibly difficult piece of technology to do. So, 9 women in a room for a month will not make the baby. That means we will have to be able to provide the service and the alternative are simply manual systems that are used today. Those are inadequate. They are incomplete. They don’t allow people to know where they really are. That’s why we uncover so many holes when we work with someone, always to their surprise. But here is why it’s harder to answer than you would like, Todd? If let’s suppose we have 100 different retailers and wholesalers using the system, if all of the suppliers that want to come on this system are connected to those 100, it’s actually pretty easy. So, I sign up a new supplier. He goes into the system and says oh, wow, here is 99 other retailers with whom I do business click, click, click, click, click 99 more times. That one is easy. I just got 99 connections simple, but the odds are reasonably good that there is holes in the supply chains, not everybody is connected to everybody. So, I just don’t know when that magic moment will occur when people sign on and everybody they want to do business with is already in the network. And then it will go like crazy. Is that magic moment when essentially 75% or 80% of new sign-ups are just connecting to people we already have? Wow, it will really be slick and it will be I think we could do 10,000 in a day technically.

[Todd Mitchell:]

But there is not a linear relationship between capacity and sign-ups?

[Randy Fields:]

No, no.

[Todd Mitchell:]

Okay.

[Randy Fields:]

Sometimes, somebody signs on and right now we have announced that we have at least 7 different hubs. Sometimes somebody does business with all 7, check, check, check, check, check, check, check, check, check.

[Todd Mitchell:]

Okay. And are you now – is the signing – the rate of signing up generating enough cash flow that ReposiTrak as it is currently structured now is no longer building on their debt that they owe to Park City Group?

[Randy Fields:]

Well, I think what we said earlier is still true. That before the end of the fiscal year, the level of debt will exceed and it will have begun to pay it down. So, we still believe that to be the case, because we see the sign-ups accelerated.

[Todd Mitchell:]

And is there any difference in the pricing model that you have previously articulated?

[Randy Fields:]

Not currently, but we are – going forward, there will certainly be some changes, but for now, it’s still the same. There is still a small sign-up fee, a small monthly fee depending on where you are in the supply chain. If you are connected to a retailer, it’s one feed. One cost of doing business if you are connected to a manufacturer to lower cost that further you are in the supply chain down to farmer. The closer you are to farmer the cheaper it is.

[Todd Mitchell:]

Okay. And with this – and then finally, you have also sort of articulated in your prior comments at this point given your need to scale the business, given the need – the ability to consolidate with shares, do you consider yourself fully funded?

[Randy Fields:]

Yes.

[Todd Mitchell:]

Okay. Last question, whatever I missed that I should have asked?

[Randy Fields:]

No, I think those are good questions. And look I hate sounding stupid. We just don’t know what 3 years looks like from ReposiTrak. We are working with – this insurance company says we have 100,000 customers. And I think about that and then I suddenly think what if they want to put all those on the system? So, the opportunity as we get into it and I like businesses like this gets larger and larger and larger. At the same time, our scaling ability is going up. The smoothness of the process is going up. The sign-ups are going up. So, it means that I referred to it as the Men to Match My Mountains problem. The team is doing a great job. The friction is going down. We will be able to deal with. Now, if tomorrow morning 200,000 companies that we want to get on the system, I can’t handle it, right. You have to scale the business. If you can do 2,000 in a year, you can probably pretty easily scale it to do 10,000 in a year. And if you have done 10,000 in a year, you can probably scale it to do 40,000 or 50,000, but when you try and go 500%, 600%, 700%, 800% a year, again you run the risk that the quality of what you provide by way of the service will suffer. And that is – that’s unacceptable. So, we are scaling it. We are – internally, the level of excitement is awfully high.

[Todd Mitchell:]

Great, that’s good to hear. I am going to jump out, because I hate my peers [indiscernible] and I have done that. So, thanks.

[Randy Fields:]

Thank you.

[Operator:]

Thank you. [Operator Instructions] I think we have a follow-up question from the line of Todd Mitchell.

[Todd Mitchell:]

I have a couple of more questions. So, you have decided to consolidate it and that I have noted there were other options on the table. So, I am assuming that there is a rationale between consolidating these communities under one eye. I think probably I would agree, but can you articulate a little bit to that rationale? And if there are potential synergies between the two businesses what they are and when they will materialize?

[Randy Fields:]

Yes. I think we are increasingly of the belief that as we talk to the customers of ReposiTrak that many of them that we have talked to just getting to know them have need as we put out a press release on the little pie companies [indiscernible] enough with my last name. Could you imagine that? No relation. That was talking about – they have talked to us about supply chain issues that they have in their business, perfect candidate for the kind of stuff that Park City Group can do for them. So, we are seeing a number of potential, I don’t think them so much of synergies as cross-selling opportunities between the businesses. A couple of the retail customers that we have today in the supply chain business are exploring ReposiTrak and so on and so forth. So, I think over the next year, we will have our first one or two or three cross sales that will be very exciting and then we have to figure out how do you merge those two sales teams, so that they know what each other does. Here is an example that the efficiencies that we have gotten in ReposiTrak with regard to self, we call it, self implementation or you do it all by yourself at a web portal. Well, we have some application of that within Park City Group. One of our customers in Park City Group’s supply chain business has a list of hundreds of customers that it wants to onboard. The Park City Group way would have been more laborious, more handholding. All of a sudden this idea opens up, but why can’t they self-implement if you will from the same kind of a portal. So, we think that’s very interesting synergies that we are going to come out in putting the two businesses together. So, the drive to do it now really is it will not be any easier to do it 2 years from now, it’s easiest to do it now as the business is scaling before it scaled. And this just appeared to be the right moment.

[Todd Mitchell:]

Great, thank you very much.

[Randy Fields:]

You bet.

[Operator:]

Thank you. Our next question comes from the line of Steve Bell from Wells Fargo Advisors. Your question please.

[Steve Bell:]

Hi, Randy. Good quarter.

[Randy Fields:]

Hi, Steve. Only good?

[Steve Bell:]

Great.

[Randy Fields:]

Thank you.

[Steve Bell:]

Very good. On the scalability side, aren’t you using for ReposiTrak a third-party group to conduct your webinars and customer interactions?

[Randy Fields:]

The answer to that is we tried and it failed.

[Steve Bell:]

Okay, okay.

[Randy Fields:]

So, it’s us. We are building out the team. Yes, you have known the company a long time. We have an enormous amount of pride about what we do and we have a quality standard that’s incredible. And we just didn’t like the way others were doing it. So, we care about it.

[Steve Bell:]

Yes. You would have Jennifer McEntire train the people up there and sign off on it, but additionally, I think recently you mentioned on the technology front that you are now using optical standards. How does that help you scale the input of information on ReposiTrak system?

[Randy Fields:]

Well, we are really just doing OCR, so that just allows us when we get documents that are electronically transmitted to us to look inside those documents, find out what the hell is there. So, it’s just an adjunct to our technology.

[Steve Bell:]

But it does allow for a quicker scaling of information on all of it?

[Randy Fields:]

All of these things, everything we do it’s a big piece of my time and my focus. We are nothing as a company, if we aren’t focused on, how do you lighten the touch, how do you make the customer experience better. And it’s my goal one year from now to have another 50% reduction in the touch that’s required with a new ReposiTrak customer.

[Steve Bell:]

And I know that Leavitt obviously has been very instrumental in bringing us into the doors with various insurance companies. Can you talk about how they might be assisting ReposiTrak in the foreign supplier verification as two ingredients that are imported to the United States and how they might help bring that area of business?

[Randy Fields:]

Well, you have touched on what is going to be an extremely big problem for the food industry. That’s part of the Food Safety Modernization Act. And going forward, we have a couple of more business ideas with Leavitt around food safety that would become – think of them as additional products that could become part of the ReposiTrak offering. Right now, there are two pieces in the ReposiTrak offering. There is a piece that does track and trace and there is a piece that looks at documents and confirms them and verifies them and think of it as compliance management. And so you could imagine that the ReposiTrak safety and compliance system, the platform could have several other modules or offerings that increases the opportunity with our existing customers. So, that’s coming, more work to be done.

[Steve Bell:]

When is the drop-dead date for the foreign supplier verification? I know that October is the supposed drop-dead date for just track and trace if you are in the United States, but when is the – what month is the….

[Randy Fields:]

I can’t remember which one it is. It’s either August or October.

[Steve Bell:]

Okay, okay.

[Randy Fields:]

So, yes, and I don't think we should refer to it as a drop-dead date to that. And you are talking about food safety?

[Steve Bell:]

Terrible pun and I was not intended obviously.

[Randy Fields:]

I am sorry. Thank you, Steve.

[Steve Bell:]

Okay. I am off the call. Thanks.

[Randy Fields:]

Okay, bye-bye.

[Operator:]

Thank you. And this does conclude the question-and-answer session of today’s program. I would like to hand the program back to management for any further remarks.

[Randy Fields:]

Yes, I think just in some wow, obviously we are feeling very good about how things are going. There is a lot of work to get these two businesses together in a way that produces synergies for both. And both have terrific opportunities lie ahead. So, a promised management and all of us at Park City Group, ReposiTrak are committed to putting smiles on your faces, the shareholders. Remember, all of us, all of the directors, all of the employees own stock. So, we are as interested in how this all develops as you are. Thank you, guys. Thanks for taking time this afternoon.

[Operator:]

Thank you, ladies and gentlemen for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.