Park City Group, Inc.

Greetings and welcome to Park City Group Fiscal First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. A question and answer session will follow the formal presentation. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Rob Fink with SMKIR. Mr. Fink, you may please begin.

Thank you, Operator, and good afternoon, everyone. Thank you for joining us today for Park City Group's first fiscal quarter earnings call. Hosting the call today, 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 is subject to risks and uncertainties which could cause actual results to differ from those forward-looking statements. Such risks are fully discussed in the company's filings with the Security 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'd now like to turn the call over to John Merrill. John, the call is yours.

Thanks, Robin. Good afternoon, everyone. The September quarter progressed as expected. We delivered another reporting period with solid results. 10% increase in recurring revenue, 80% gross margins, 71% increase in net income, double DPS, delivered over $1 million in cash. At the same time, we paid off all the company debt, $6 million. Now, with 97% of our total revenue recurring, we continue to provide an easy-to-model, profit-oriented business with predictable recurring revenue, low fixed costs, and growing operating margins. As I have said before, each incremental dollar over our $11 to $12 million annual fixed cash costs largely falls to the bottom line. In other words, our profitability grows substantially faster than revenue. This is reflected in the first fiscal quarter of 2022 and all of last year. This provides us with strong free cash flow and, in my view, the investor with better line of sight and predictability of results. Highlights of the first quarter ended September 30th are as follows. Total revenue decreased 13% to $4.6 million. This was due to lower marketplace revenue. Recurring revenue for our SaaS business, which includes compliance and supply chain, was up 10% to $4.4 million. Recurring revenue now represents 97% of total revenue. Marketplace revenue decreased 91% to just over $100,000. Total expenses decreased 26% due to lower marketplace costs. SG&A expenses decreased 3%. Net income increased 71% to just under $1 million. Cash from operations suppressed $1 million. And we paid off $6 million of debt. Even after paying off the debt, we have $20 million cash in the bank, or approximately $1.05 per share. Park City Group is now a SaaS company. The transactional marketplace revenue, which created volatility in our quarter-to-quarter revenue and a drag on our margins, is now shifting to the same SaaS model. No different than converting $5 to $6 million a year in annual one-time license and services revenue to SaaS, which we accomplished. This is our strategic decision for Marketplace. Make it SaaS. This will take time, as it did with the transition of other one-time revenue. However, this will enable us to focus on track and trace which represents the largest potential SaaS opportunity we've seen. As a SaaS business, we are laser focused on recurring revenue, de-emphasizing transactional, and sunsetting other non-core products and services so that we are able to allocate resources towards a very financial rewarding opportunity, traceability. Our recurring revenue at September 30th was approximately $17.6 million on an annualized basis, resulting in 97% of total revenue. Our ARR reflects our strategic decisions and assumes no continued growth, which is highly unlikely given our 10% growth in Q1 and stated goal of 10% to 20% per annum. It should be noted that only a few short years ago, recurring revenue was only $9 million and 64% of revenue. The transition is complete. Looking back, our compounded annual growth rate, or CAGR, was 14.4% for the period. Our CAGR for net income for the same period is north of 39%. Yes, there's lots more to do, but I am proud of what we have accomplished thus far. As we have said on previous calls, our cash costs of running the business absent marketplace are $12 million per annum. You should note that our cash expense run rate decreased in Q1 and is approximately $11.5 million per year, down 4%. Again, about 80 to 85 cents of any incremental dollar over the 12 million base now $11.5 million, and declining for the software business falls to the bottom line. Both Randy and I have invested substantially over the years in internal automation, process improvement, and streamlining decision-making to improve productivity. That is paying off now. To summarize, we have a combination of proven solutions that enable customers to be compliant, provide more actionable visibility into their supply chain, replace vendors, and source hard-to-find items now on a subscription basis. More than ever before, we are an important resource for our customers, simultaneously driving recurring revenue growth, profitability, and cash. Turning to the quarterly numbers. Fiscal year 2022 first quarter revenue was $4.6 million, down 13% from $5.2 million in the same quarter last year. The decrease was due to lower marketplace revenue as part of our strategic plan, as I previously mentioned. Recurring revenue as a percentage of total revenue was 97% for the quarter, or $4.4 million. This is a 10% increase over the same period in fiscal 2021. Total operating expenses decreased 26% from $4.6 million in Q1 2021 to $3.4 million in Q1 2022. The decrease is due to lower marketplace costs and continued expense disciplines. Sales and marketing expenses decreased from $1.3 million in Q1 2021 to $1.2 million in Q1 2022. This decrease was the result of lower sales travel, trade shows, and cost reductions. G&A costs were essentially flat at $1.1 million. For the first quarter of fiscal 2022, GAAP net income was $947,000, or 21%, of revenue versus $555,000 or 11% of revenue, essentially a double. Net income to common shareholders was $800,000 or 4 cents per common share versus $408,000 or 2 cents per common share. Turning now to cash flow and cash balances. For the fiscal first quarter, we generated cash from operations of $1.1 million compared to $1.2 million last year. Total cash September 30th, 2021 was $20.4 million compared to $24 million at the end of fiscal year 2021. The decrease in total cash was due to the payoff of a $6 million credit facility with a bank. Accordingly, Park City Group carries no debt. 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 recommenced the program in the third fiscal quarter of 2021 and continued our activity in the fourth quarter and into the new fiscal year. In the first quarter of 2022, the company repurchased 7,600 shares at an average price of $5.43 per share for a total of $41,276. Please note, since this was the first quarter of the fiscal year, the SEC rules only allowed us to be in the market for a couple of days. We anticipate higher levels of share repurchases in the second quarter, subject to various rules that limit how, when, and at what price we can be buyers, as we'll have more days between quiet periods. Since the program began, the company has repurchased 718,394 shares at an average price of $5.58 per share for a total of $4 million. As our business and its current and future cash flows are predictable, in August of 2021, the Board of Directors again approved to increase the stock repurchase program by $10 million. The company has $11.9 million remaining on the $12 million stock buyback authorization. We will continue to opportunistically buy back more shares should conditions permit. The combination of cash earnings growth and a shrinking capitalization should provide all of us with excellent EPS growth. Thanks everyone for your time today, and at this call, I'll pass the call over to Randy. Randy?