Park City Group, Inc.

Greetings and welcome to the Park City Group fiscal first quarter 2021 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you should require any operator assistance during the call, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rob Fink with FMK IR. Mr. Fink, please go ahead.

Thank you, Operator, and good afternoon, everyone. Thank you for joining us today for Park City Group's fiscal first quarter earnings call. Hosting the call today are Randy Fields, Park City Group's CEO and Chairman, and John Merrill, Park City Group's 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 upon current beliefs and expectations. Park City Group management are subject to risks and uncertainties, which could cause actual results to differ materially from those 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 risks. Park City Group does not assume any obligation to update information contained in this conference call. Today, the company issued a press release overviewing the financial results that they will discuss on today's call. Investors can visit the investor relations section of the company's website at parkcitygroup.com to access this press release. With all that said, I'd now like to turn the call over to John Merrill. John, the call is yours. Thanks, Rob, and good afternoon, everyone.

Today, we report financial results for the first quarter of fiscal 2021, ending on September 30th. Highlights of the quarter are as follows. Recurring revenue growth for our SaaS business, which includes compliance and supply chain, was up 6%. Marketplace revenue grew 15%. With growth in all free product lines or consolidated revenue grew 9%. SG&A expenses decreased 10%. Net income more than tripled. Cash from operations was $1.22 million, and our balance sheet remains strong. The bottom line is that over the last year, we have built a profitable, diversified, growing business with a strong recurring SaaS component and a modest cost structure. Considering the significant challenges related to the pandemic and ongoing uncertainty, I am encouraged with our results. As we have communicated before, our software business comprised of compliance and supply chain services is now effectively all recurring in nature. Eliminating a significant amount of one-time license revenue and shifting to recurring revenue while maintaining profitability was a significant challenge, to say the least. To be sure, the pandemic has elongated sales cycles for our software solution and created near-term challenges. But in the first quarter, we grew our software business, and we have proven the value we bring our grocery customers by helping them navigate this environment. We still have just 10% penetration with our existing customers, so farming our own customer network remains a top priority for opportunity. We can significantly grow our software business just by farming our existing network. The second revenue stream in our business is Marketplace, which allows buyers and sellers to source hard-to-find things within our network of 20,000-plus vetted retailers and their suppliers. As I have said before, Marketplace is largely transactional and inherently unpredictable. The size and scope of transactions can vary from quarter to quarter based on seasonality, buyer preferences, pricing, and the latest demand for those hard-to-find things. Because we sit between buyer and seller, our margin, whether as a markup of goods or a commission, is substantially less than we get on the software side of the business. Gross margin on incremental revenue of our software business base is approximately 80% to 85%. Conversely, marketplace is on average roughly 5%. We are focused on expanding that margin both within and outside the traditional grocer segment. Randy will speak more on that topic during his remarks. While both the software and marketplace components of our business are difficult to separate from our business strategy and software suite, our overall offering to our customers is a combination of solutions that enable customers to be compliant, have more actionable visibility into their supply chain, replacing vendors, diversifying product offerings, and sourcing hard-to-find items. These two parallel product offerings provide management and investors visibility into our revenue stream, utilizing the recurring revenue as a baseline and the opportunity for higher growth from our Marketplace offering. While Marketplace generates a lower contribution margin, it remains profitable. As we said on the last call, our fixed costs are fully covered by our recurring revenue, giving us predictable and sustainable profitability. In addition, we have significant and growing cross-selling opportunities between these three products, compliance, supply chain, and marketplace. Turning to the numbers. Fiscal year 2021, first quarter revenue was $5.23 million, up 9% from $4.80 million in the same quarter last year. Total operating expenses decreased 1% from $4.7 million in Q1 2020 to $4.6 million in Q1 2021. The principal driver in the decrease in total operating expenses was a $270,000 decrease in sales, general, and administrative costs. In response to the COVID environment, we said through cost-cutting measures, our goal was to reduce cash operating expenses by $100,000 a month absent marketplace. I believe our numbers reflect we are headed in the right direction. Cost of services and product support expenses increased 8% from $1.8 million in Q1 2020 to $2 million in the same period in 2021. The increase was the result of higher expense associated with higher marketplace revenue and partially offset by cost reductions and hosted software charges. Sales and marketing expenses decreased from $1.4 million in Q1 2020 to $1.3 million in Q1 2021. This 9% decrease was the result of lower sales travel, trade shows, and cost reductions offset in part by higher commissions due to higher revenue. G&A costs decreased from $1.2 million in Q1 2020 to $1.1 million in the same period of fiscal 2021. This was primarily the result of lower travel-related costs, completion of certain projects, and cost-cutting measures we implemented in the fourth quarter of fiscal 2020. For the first quarter of fiscal 2021, GAP net income was $555,000, or 11% of revenue, versus $178,000, or 4% of revenue. Gap net income to common shareholders was $408,000, or 2 cents per diluted share, compared to $32,000, or 0 cents per diluted share. Turning now to cash flow and cash balances. For the first three months of fiscal year 2021, we generated cash from operations of $1.2 million, compared to $713,000 in the prior year period, an increase of 72% due to a higher operating margin on incremental revenue. Total cash at September 30, 2020 was $21.2 million compared to $20.3 million at the end of fiscal year 2020. On a final note on cash and balance sheet strength, keep in mind balance sheet strength is a necessity to our customers. They demand it, particularly in this unprecedented time. Therefore, we continue our focus to grow cash through recurring revenue, a well-controlled cost structure, maximizing profitability, and generating value for customers and shareholders. With respect to our stock buyback program, as we said during the height of the COVID pandemic, we made the prudent decision to halt our buyback program. We did not repurchase any shares during either the fourth fiscal quarter or the first fiscal quarter. The company has $1.36 million remaining on its existing stock buyback program, and given our current ability to generate cash, we may consider opportunistically resuming the program at some point in fiscal 2021. Thanks, everyone, for your time today, and at this point, I'll pass the call over to Randy. Randy?