Park City Group, Inc.

Greetings and welcome to the Park City Group Fiscal Second 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 anyone should require operator assistance during the conference, 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 FNKIR. Mr. Fink, you may begin.

Thank you, operator. Good afternoon, everyone. Thank you for joining us today for Park City Group's fiscal second 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 on current beliefs and expectations. Park City Group management are subject to risks and uncertainties, which could cause actual results to differ maturely 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. Shortly after the market closed today, the company issued a press release overviewing the financial results that will be discussed 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 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 second quarter of fiscal 2021, ending on December 31st. Highlights of the quarter are as follows. Recurring revenue growth for our SaaS business, which includes compliance and supply chain, was up 7%. Marketplace revenue grew 112%. With growth in all three product lines, our consolidated revenue grew 7%, from $4.8 million to $5.2 million. Sales and marketing expenses decreased 17%. Net income increased 145% aided by a gain related to the forgiveness of our PPP loan. Cash from operations year to date was 3.8 million. And our balance sheet remains strong with 23.9 million in cash. The bottom line is we continue to deliver a profitable, diversified, growing business with a strong recurring SaaS component with a modest cost structure and a marketplace business whereby we source hard to find things for our customers. Considering the significant challenges related to the pandemic and ongoing uncertainty, I am encouraged with our results thus far for fiscal 2021. As we have said previously on earnings calls, our software business comprised of compliance and supply chain services is now effectively all recurring in nature. This recurring revenue more than covers our fixed cash costs, resulting in predictable profitability. I believe we are now at scale for the software side of the business, so incremental revenue, either recurring or transactional, largely falls to the bottom line at roughly an 80% to 85% margin. Therefore, as the software side of the business expands, we are able to support higher revenues without meaningful increases on our SG&A lines. While the pandemic continues to extend the sales cycle for our software business, we believe there is pent-up demand as things begin to normalize. When this will occur and what is the new normal, it is anyone's guess. As a reminder, we still have only a 10% penetration with our existing software customers, so farming our own customer network remains a top priority for opportunity. As I've said before, we can significantly grow our software business just by farming the existing network. While the pandemic continues to delay decision-making on software side of the business, it has increased demand for our marketplace solution, whereby we source, vet, and transact business for hard-to-find things such as nitrile gloves, masks, gowns, just to name a few. This results in a fluctuating amount of non-recurring and largely unpredictable transactional marketplace revenue. This revenue and its respective costs result in a sales mix between our software business and marketplace business, which may compress our total company gross margin. But due to our low fixed cost base, it is increasing our profitability and free cash flow. Because we sit between buyer and seller, our margin, whether as a markup of goods or a commission, is substantially less than we get in the software side of the business. Gross margin on incremental revenue for our software business base is approximately 80% to 85%. Conversely, marketplace is on average roughly 5% to 10%. We are focused on expanding the marketplace margin both within and outside the traditional grocer segments. While both the software and marketplace offerings 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 enables customers to be compliant, have more actionable visibility into their supply chain, replacing vendors, diversifying product offerings, and sourcing hard-to-find items. Turning to the numbers. Fiscal year 2021 second quarter revenue was $5.2 million, up 7% from $4.8 million in the same quarter last year. It should be noted that $410,000 of one-time revenue for the software business occurred in the December 2019 quarter that did not reoccur in the same quarter of 2020. If you consider that we backfilled a large portion of the one-time revenue with subscription, our software revenue was up 17% year over year. Total operating expenses increased 14% from $4.2 million in Q2 2020 to $4.7 million in Q2 2021. The principal driver in the increase in total operating expenses was the increase in cost of services and product support related to higher marketplace revenue and partially offset by cost reductions in hosted software and other technology service charges. Sales and marketing expenses decreased from 1.4 million in Q2 2020 to 1.2 million in Q2 2021. This 17% decrease was the result of lower sales travel, trade shows, and cost reductions partially offset by higher commissions due to higher revenue. G&A costs increased modestly from 1.1 million in Q2 2020 to 1.2 million in Q2 2021. This was primarily the result of rising insurance costs due to the pandemic and increases in our bad debt reserve. We believe it is prudent to increase our reserves in this uncertain time. For the second quarter of fiscal 2021, gap net income was $1.6 million, or 31% of revenue, versus $663,000, or 14% of revenue. The forgiveness of our PPP loan, recognized as a one-time gain on debt extinguishment, was $1.1 million of this increase. Earnings per share for the second quarter of fiscal 2021 was $0.08 per share, more than double of $0.03 per share in the same period of fiscal 2020. Fiscal year 2021 year-to-date revenue was $10.4 million, up 8.3% from the $9.6 million in the same period of fiscal 2020. It should be noted that year-to-date revenue in fiscal 2020 included $475,000 in one-time revenue that did not occur in the same period of fiscal 2021. As we have said previously, from time to time, there will always be a small component of customers that buy, meaning license, versus rent, meaning subscription. In fiscal 2021, year-to-date one-time revenue in our software business is less than 1%. Total operating expenses for fiscal 2021 year-to-date was $9.4 million versus $8.9 million. This 6% increase is largely the result of higher revenue and the associated cost of services of that increase in revenue. Sales and marketing expenses for fiscal 2021 year-to-date declined 13%, from $2.9 million in fiscal 2020 to $2.5 million in fiscal 2021. This was due largely to telecommuting versus in-office maintenance costs, a reduction in trade shows, and lower travel expenditures. G&A costs for fiscal 2021 year-to-date versus fiscal 2020 were essentially flat, down 1% or $24,000. While costs of benefits, insurance, and reserves for bad debt have increased as a result of the pandemic, we remain committed to adjusting our cost structure in other areas to keep the costs low. Turning now to cash flow and cash balances, for the second fiscal quarter of fiscal year 2021, we generated cash from operations of $3.7 million compared to $2.7 million in the prior year period, an increase of 37% due to increases in incremental revenue. Total cash at December 31, 2020 was $23.9 million compared to $20.3 million at the end of fiscal year 2020. 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 purchase any shares during either the first or second fiscal quarter of 2021. The company has $1.46 million remaining on its existing buyback program and given our current ability to generate cash, we may consider opportunistically resuming the program at some point in fiscal 21. Thanks, everyone, for your time today. At this point, I'll pass the call over to Randy. Randy?