Park City Group, Inc.

Greetings and welcome to the Park City Group Fiscal Third Quarter 2022 Earnings Conference Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, you may press star 1 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jeff Stanlis of FNKIR. Thank you, Mr. Stanlis. You may begin.

Thank you, operator, and good afternoon, everyone. Thank you for joining us today for Park City Group's fiscal third quarter earnings 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 the 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 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 we 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 would now like to turn the call over to John Merrill. John, the call is yours.

Thanks, Jeff, and good afternoon, everyone. Our transition to a SaaS company is complete. 100% of our revenue is recurring. Our strategy is very simple. Grow recurring revenue, control costs through a combination of increased productivity and cost management, increase net income, accelerate EPS, buy back shares, and drive cash. Recurring revenue grew 7% year over year and 8% year to date. We ended the quarter with an exit rate of recurring revenue of $18.6 million. What does that mean? That means signed contracts in hand at March 31, 2022 that are billing monthly multiplied times 12 will generate $18.6 million in recurring revenue in the subsequent 12 months if we just stand still. Again, our revenue is 100% recurring today. To put that in perspective, last year recurring revenue was 71%. This also included over $4 million in one-time revenue like marketplace and recurring revenue products and services that had little upside or very low margin. We've eliminated all this non-core, non-recurring revenue. By controlling costs and increasing productivity, we have reduced our overall annual cash spend to under $12 million. What do I mean by productivity? We have eliminated using outside third-party vendors for CRM, employee expense reporting, and document compiling for both Sarbanes-Oxley and SOC compliance. We are a software company. Instead of utilizing third-party software to facilitate these tasks, we built it internally. We have the development team to do things better, cheaper, and more efficiently tailored for our specific needs. This efficiency is reflected in the financial results. Increasing net income is a derivative of growing recurring revenue, managing expenses, and productivity, and it shows in the quarterly results. Gross margin increased from 56% in Q3 2021 to 83% in Q3 2022. Income from operations increased from $720,000 to $1.18 million, up 64%. Net income grew 41% to $1.09 million, and EPS grew 55% to $0.05 a share. I believe it is critically important that shareholders understand our strategy through the eyes of management. Not only is it producing better results, but has and will provide better clarity and transparency to model our future. What do I mean by this? If you take our annual recurring revenue exit rate, call it $19 million, and add a certain growth rate, 10% to 20%, it is pretty easy to determine our likely revenue in the next 12 months since we are 100% recurring revenue with very little customer churn. This doesn't consider any future opportunities, including traceability or other initiatives. On the expense side, most of you have heard me say it takes $12 million in cash to run this place. That number is now closer to $11 million. Yes, we have depreciation, amortization, bad debt expense, and other non-cash accounting costs. However, it is simple math to determine what our income from operations and cash generation might be. As we have said before, going forward, on each incremental recurring revenue dollar, 80 to 85 cents will fall to the bottom line. You can already start to see this materialize with an 83% gross margin in the quarter. In addition, we generated $4 million cash from operations in the first nine months of the fiscal year. In other words, our systemic profitability continues to grow substantially faster than revenues. The earnings power of the company is now clear and easy to model. It is also significant. Turning to the quarterly numbers. Fiscal year 2022 third quarter revenue was $4.6 million, down 24% from $6 million in the same quarter last year. The decrease was due to the planned annual reduction in $4.2 million in one-time revenue, like Marketplace and other recurring revenue products and services that had little upside or very low margins. This freed up resources to prepare for one of the largest opportunities in Park City Group's history, meeting the FDA's food traceability standards. Recurring revenue as a percentage of total revenue was 99.9% for the quarter, or $4.56 million. This is a 7.3% increase over the same period in fiscal 2021. Total operating expenses decreased 36% from $5.3 million in Q3 2021 to to $3.4 million in Q3 2022. The decrease is due to lower marketplace costs associated with lower marketplace revenue and continued expense discipline. Sales and marketing expenses increased from $1.16 million in Q3 2021 to $1.23 million in Q3 2022. This increase was the result of higher sales travel and trade shows as COVID travel restrictions abate, partially offset by cost reductions. G&A costs were down 6% to $1.2 million. For the third quarter of fiscal 2022, gap in income was $1.1 million or 24% of revenue versus $773,000 or 12.8% of revenue. So for the third quarter in a row, we have essentially doubled our net margin. Net income to common shareholders was $941,000 or 5 cents per common share based on 19.4 million weighted average shares versus $627,000, or 3 cents per common share, based on 19.9 million weighted average shares. You'll note we have reduced our capitalization significantly through the repurchase and retirement of shares, which I will touch on more in a minute. Turning to the nine-month numbers. Fiscal year 2022 year-to-date revenue was $13.5 million, down 18% from $16.4 million in the same period last year for the reasons I've already discussed. Recurring revenue as a percentage of total revenue was 98.4% for the nine months, or $13.3 million. This is an 8.1% increase over the same period of fiscal 2021. Total operating expenses decreased 31% from $14.7 million for the first nine months to $10.2 million. Sales and marketing expenses decreased from $3.64 million in 2021 to $3.57 million in fiscal 2022. G&A costs were down 2% at $3.5 million. Income from operations was up 90% to $3.3 million. Year-to-date gap net income was $2.9 million, or 22% of revenue, versus $3 million, inclusive of a $1.1 million gain on the forgiveness of our PPP loan. Excluding this, year-to-date net income last year was $1.9 million, or 12% of revenue. Net income to common shareholders was $2.5 million or $0.13 per common share versus $2.5 million or $0.13 per common share in fiscal 2021. Again, the prior year period includes the impact of the $1.1 million PPP gain on loan forgiveness. Turning now to cash flow and cash balances. Year-to-date, we generated cash from operations of $4 million compared to $3.4 million last year. Total cash at March 31, 2022 was $21.3 million compared to $24.1 million at the end of fiscal year 2021. We continue to repurchase our shares with a combination of cash in our line of credit. The company now carries approximately $3.4 million on its revolving line of credit. In the third quarter, the company repurchased 538,376 shares at an average price of $6.95 per share for a total of $3.7 million. To date, the company has repurchased 1.52 million shares at an average price of $6.09 a share for a total of $9.26 million. The board has authorized an additional $9 million repurchase. Now, the company has approximately $11.7 million remaining on the $23 million total buyback authorization since inception. We are a SaaS company, 100% recurring revenue, 80% gross margins, a fortress balance sheet, including $21.3 million in cash and growing, little debt, and reducing our capitalization. I'm very proud of what we accomplished thus far. More to come. Thanks, everyone, for your time today. And at this point, I will turn the call over to Randy. Randy?