Park City Group, Inc.

Greetings, and welcome to Park City Group Fiscal Second Quarter 2022 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 FNK IR. Mr. Fink, you may begin.

Thank you, operator. Good afternoon, everyone. Thank you for joining us today for Park City Group's fiscal second earnings conference call. Hosting the call today are Randy Fields, Park City Group's chairman and CEO, 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 subject 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 filing with the Securities and Exchange Commission. The information set forth hereon 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 its 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. The December quarter marked the completion of our three-year transition to a SaaS company. Essentially, all of our revenue in the quarter, 99%, was sold on a subscription basis. Hence now, all of our revenue is recurring. To put this in perspective, in 2018, only 64% of our revenue was recurring. Marketplace revenue was volatile and highly unpredictable. And we sold software licenses and other lumpy one-time services. This made it very challenging for us and our investors to predict quarter-to-quarter revenue and provide any actionable line of sight to our profitability. In 2019, our goal was to convert non-recurring revenue to SaaS while simultaneously reducing cash expenses, making our business much easier to forecast and more profitable. We have achieved that. It was a bold goal. It was difficult. It was methodical. We heavily invested in technology and process. We have a superior team, just 64 people, and we utilize our own technology, replacing third-party CRM providers, antiquated contract storage partners, scrutinizing and eliminating waste, and streamline every process from contract to cash. Nonetheless, as I have said before, from time to time, there will always be a customer that insists on buying, meaning license, versus renting, meaning SaaS subscription. However, that occurrence should be few and far between, and we have structured our sales process and pricing models to encourage the sale of SaaS solutions wherever possible. Going forward, our current baseline recurring revenue, together with our stated goal to grow recurring revenue at approximately 10 to 20 percent annually, should serve as a model for predictable top-line growth for us and our shareholders. It should be noted that consolidated revenue in the quarter reflects the absence of $1 million in non-recurring marketplace revenue. and sunsetting vendor-based pricing, which accounted for approximately $650,000 annually in revenue and $200,000 in the quarter. Eliminating one-time revenue and ancillary efforts enables us to reallocate and realign resources to prepare for one of the largest opportunities in the company's history, providing our customers a cost-effective solution for the anticipated FDA's food traceability mandate. Please note that despite our recurring revenue achievements, we will commonly experience volatility on a quarter-to-quarter basis. We have seasonal vendors. There is constant consolidation in the grocery industry we serve. Consequently, some quarters will be higher and some quarters lower. In any event, we maintain our goal to grow our recurring revenue at 10% to 20% annually. In addition to growth in recurring revenue, we continue to reduce our cash operating expenses. Total operating expenses decreased 29% year over year, partly due to lower costs of goods sold associated with one-time marketplace sales, but largely due to continued expense management and permanent expense reductions in our SG&A and R&D lines, which we have previously communicated. The net result is systemic profitability. As I have said before, each incremental revenue dollar over our $11 to $12 million and fixed cash costs, now $11 million, largely falls to the bottom line. You can see that in a revenue per employee, $305,000 each, 84% higher than the industry average. You can see that in the cash we are generating, $3.1 million in the first six months of this fiscal year and $2 million in the second fiscal quarter alone. This validates the leverage in the model. In other words, our cash and profitability grows substantially faster than revenues. Our net income, excluding the one-time benefit from the forgiveness of our PPP loan in the prior year's second quarter, increased 66% on a decrease in consolidated revenue. The earnings power of the company is now clear and easy to model. As we grow our top line, we should grow our bottom line even faster. Highlights as of December 31 are as follows. Total revenue decreased 16% to $4.4 million due to lower marketplace revenue and sunsetting of ancillary products. This was the plan. Recurring revenue for our SAS business, which includes compliant supply chain, was up 7% to $4.3 million for the quarter and 9% year-to-date. Recurring revenue now represents 99% of total revenue. Total expenses decreased 29% due to lower across-the-board costs. Operating income surged 148%. Net income excluding the non-recurring $1.1 million gain on the forgiveness or PPP loan increased 66%. Our net income for the quarter was $872,000 or 4 cents per diluted share. Cash from operations was nearly $2 million. We bought back over 244,000 shares of stock and we ended the quarter with $21.7 million in cash in the bank. Park City Group is now a SaaS company. The transactional revenue, which created volatility in our quarter-to-quarter revenue and a drag on our margins, has now shifted to a SaaS model. To summarize, we have a combination of proven solutions that enables customers to be compliant, provide more actionable visibility into their supply chain, replace vendors, and source hard-to-find items now, all on a subscription basis. Turning to the quarterly numbers. Fiscal year 2022 second quarter revenue was $4.4 million, down 16% from $5.2 million in the same quarter last year. The decrease was due to $1.2 million lower revenue as part of our strategic plan, as I've already discussed. Recurring revenue as a percentage of total revenue was 99% for the quarter, or $4.3 million. This is a 7% increase over the same period in fiscal 2021. Total operating expenses decreased 29% from $4.8 million in Q2 2021 to $3.4 million in Q2 2022. Decreases due to lower across-the-board costs. Sales and marketing expenses decreased from $1.2 million in Q2 2021 to $1.15 million in Q2 2022. This decrease was the result of lower sales travel, trade shows, and cost reductions. G&A costs were essentially flat at $1.2 million. For the second quarter of fiscal 2022, gap net income was $872,000, or 20% of revenue, versus $1.6 million last year, which included the $1.1 million benefit for the forgiveness of our PPP loan. Excluding this gain, net income in the second quarter last year was $524,000, or 10% of revenue. So for the second quarter in a row, we've essentially doubled our net margins. Net income to common shareholders was $725,000, or 4 cents per common share, versus $1.5 million, or 8 cents per common share. Again, the prior year quarter includes the impact of the PPP loan forgiveness. Turning to the six-month numbers. Fiscal year 2022 year-to-date revenue was $8.9 million, down 14% from $10.4 million in the same period last year. Recurring revenue as a percentage of total revenue was 98% for the six months, or $8.7 million. This is a 9% increase over the same period in fiscal 2021. Total operating expenses decreased 28% from $9.4 million to $6.8 million for the first six months of fiscal 2022. Sales and marketing expenses decreased from $2.4 million in 2021 to $2.3 million in fiscal 2022. Again, G&A costs were essentially flat at $2.3 million. Year-to-date gap net income was $1.82 million, or 20% of revenue, versus $2.18 million, inclusive of the $1.1 million gain on the forgiveness or PPP loan. Excluding this, net income in the second quarter last year was $1.1 million, or 11% of revenue. So, again, for the second quarter in a row, we have essentially doubled our net margins. Year-to-date gap in income to common shareholders was $1.53 million, or $0.08 per common share, versus $1.88 million, or $0.10 per common share, last year, which again includes the impact of the PPP loan forgiveness. Turning now to cash flow and cash balances. For the fiscal second quarter, we generated cash from operations of $2 million. Total cash at December 31, 2021 was $21.7 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 during the first quarter. The company now carries approximately $930,000 in short-term debt on its revolving line of credit. The short-term debt was used to buy back additional shares of stock. During the quarter, we repurchased 244,552 shares at an average price of $5.85 per share for a total of $1.43 million. To date, the company has repurchased 1,002,914 shares at an average price of $5.66 per share for a total of $5.7 million. The company has approximately $10.5 million remaining on the $12 million buyback authorizations. Thanks, everyone, for your time today. And at this point, I'll pass the call over to Randy. Randy?