Park City Group, Inc.

to Park City Group fiscal fourth quarter and full year 2021 earnings call. At this time, all participants are in the listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your cell phone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Rob Fink.

Thank you, operator, and good afternoon, everyone. Thank you for joining us today for Park City Group's fiscal fourth quarter and full year earnings conference 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 materially from those forward-looking statements. Such risks are fully disclosed 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 all that said, I would now like to turn the call over to John Merrill. John, the call is yours.

Thanks, Robin. Good afternoon, everyone. We continue to execute on our stated strategy, delivering another profitable quarter and year of growth. We've established a profit-oriented business model with significant recurring revenue, low fixed costs, and a growing operating margin. Our business is now easy to model, and on an annual basis, we have significant confidence and consistent growth. Each incremental dollar from here largely falls to the bottom line. meaning our profitability will grow substantially faster than our revenue, as it did in the fourth fiscal quarter and all of last year. This yields us strong free cash flow. Highlights of the fiscal year ended June 30 are as follows. Recurring revenue for our SaaS business, which includes compliance and supply chain, was up 11% to $17.7 million. Recurring revenue as a percentage of total revenue increased from 80% to 84%. Our annual recurring revenue run rate, or ARR, as of June 30, 2021, was $18.4 million, a baseline of recurring revenue for fiscal 2022. Marketplace revenue increased 11% to $3.2 million. With across-the-board growth, total revenue increased 5% to $21 million. SG&A expenses decreased 5% against the 5% revenue growth. Net income increased 158% to more than $4.1 million. Cash from operations grew to $5.4 million, up 29%. And we ended the year with $24 million in cash, or approximately $1.23 per share. We have successfully built a scalable, profitable, and growing business made up of two components, a recurring SaaS business and a transactional marketplace business. We continue to drive both components with a modest SG&A cost structure, which enables us to grow our bottom line faster than our top line. Our Marketplace offering has matured and its value to our customers has been proven, albeit with a significantly less contribution margin. In order to improve the margin of Marketplace, we are planning some structural changes to how we go to market to bring its contribution more in line with our SaaS offerings. In other words, we intend to convert Marketplace from a transactional, highly unpredictable business to a software-as-a-service comparable to our compliance and supply chain offerings. We were successful at converting $5 to $6 million a year in one-time license and service revenue to SAS, so I'm confident over the course of time we can do the same with Marketplace. In the meantime, Marketplace remains largely transactional and unpredictable. As mentioned, our full-year recurring revenue at June 30 was $17.7 million. Our annualized recurring revenue exit rate at June 30, 2021, was $18.4 million for fiscal 2022, assuming no growth. Our stated goal, as we have said in the past, is to grow recurring revenue by 10% to 20% per year. Since we have experienced very low attrition and we are effectively at 100% recurring revenue for the software side of the business, our base recurring revenue is now highly predictable. Furthermore, our sales team is incentivized on growing recurring revenue beyond the base. We operate our cash fixed costs of $12 million per annum absent marketplace. With $17.7 million in recurring revenue against $12 million in cash costs, we are structurally a profitable company. This is reflective in our $5.4 million cash generated from operations. As I have said before, about 80 to 85 cents of any incremental SAS revenue over the $12 million base falls to the bottom line, as we can scale our revenue with very little incremental costs. Marketplace, on the other hand, roughly provides a 5 to 10% contribution margin. It's not the software side of the business at north of an 80% margin, but it does meet a customer demand despite its long-term uncertainty. Our customers really like the service, and we think a subscription model similar to an Amazon Prime will be well received. To summarize, we have a combination of solutions that enables customers to be compliant, provide more actionable visibility into their supply chain, replace vendors, and source hard-to-find items. More now than ever before, we are an important resource for our customers simultaneously driving top-line revenue growth, profitability, and cash. Turning to the quarterly numbers. Fiscal year 2021, fourth quarter revenue was $4.6 million, down 20.5% from $5.8 million in the same quarter last year. The decrease was due to lower transactional marketplace revenue. At the height of COVID, many of our marketplace customers demanded nitrile gloves and masks. As the larger pandemic concern has abated over the last six months, so has the demand for hard-to-find COVID-related items. Again, Marketplace is transactional revenue, highly unpredictable, but it does fill a customer demand. Total operating expense decreased 35% from $5.3 million in Q4 2020 to $3.4 million in Q4 2021. The decrease in total operating expenses reflects largely a $2 million decrease in the cost of goods sold associated with lower marketplace revenue. Sales and marketing expenses increased from $1.3 million in Q4 2020 to $1.4 million in Q4 2021. This 8% increase was the result of an increase in sales travel, trade shows, and other sales-related costs as longer-term COVID concerns slowly continue to abate. G&A costs increased from $1.4 million in Q4 2020 to $1.6 million in Q4 2021. This was primarily the result of an increase in higher liability insurance costs and an increase in the reserve for doubtful accounts. As I have said in previous calls, while we have not experienced a significant customer default, we believe it is prudent to increase our reserves given some delayed payments we have received and given that ongoing disruptions in the supply chain have affected some customers more than others. For the fourth quarter of fiscal 2021, GAAP net income was $1.2 million or 26.1% of revenue versus $480,000 or 8.3% of revenue. Net income to common shareholders was $1 million or $0.05 per common share versus $333,000 or $0.02 per common share in the same period in fiscal 2020. Turning to the full year numbers. For the year ended June 30, 2021, total revenue was $21 million compared to $20 million last year. This 5% increase in revenue is due to both growth in recurring subscription revenue and marketplace revenue. Full year recurring revenue growth in the software business was 11%. Marketplace growth was 10.6%. Cost of services and product support was $6.9 million compared to $7 million last year. This modest decrease is primarily the result of higher expense associated to marketplace in the sales of PPE, partially offset by lower overall development costs, a reduction in outside consulting services, and other cost-cutting measures implemented in response to COVID. While we have experienced a significant increase in marketplace revenue and costs during the pandemic due to demand and PPE, it is unclear what level of ongoing marketplace costs we may experience if the pandemic continues to abate. Sales and marketing expenses were $5 million compared to $5.8 million last year, a 15.6% decrease. The decrease is due to a reduction in trade show expense, lower overall sales and marketing expenses, particularly travel expense. G&A expense was $5.2 million compared to $4.9 million last year, a 5.4% increase. G&A expense increased year over year due to an increase in bad debt expense and higher insurance costs. These increases are partially offset by lower general overhead due to cost-cutting measures and natural reductions due to our work-from-home status since April of 2020. For the year ended June 30, 2021, GAAP net income was $4.1 million compared to $1.6 million for the same period of fiscal 2020. This 158% increase in net income is largely due to an increase in revenue and lower SG&A expenses. Fiscal 2021 net income common shareholders was $3.5 million or $0.18 per common share compared to $1 million or $0.05 per common share for the same period in 2020. Turning now to cash flow and cash balances. For the fiscal year 2021, we generated cash from operations of $5.4 million compared to $4.2 million last year, an increase of 29%. Total cash at June 30, 2021 was $24 million compared to 20.3 million at the end of fiscal year 2020, an 18% increase. With respect to our stock buyback program, as we said during the height of the pandemic, we made the prudent decision to halt our buyback program. We recommenced the program in the third fiscal quarter and continued our activity in the fourth quarter, repurchasing 126,927 shares at an average price of $6.30 per share for a total of $800,000. As our business and its current and future cash flows have continued to increase in their visibility and likelihood, the Board decided to increase the size of our buyback by $10 million. This takes our total authorization to $12 million. As I have said before, we believe our stock, given the predictability of business, continues to be a very good long-term investment for us and our shareholders. Thanks, everyone, for your time today, and at this point, I'll pass the call over to Randy. Randy?