Park City Group, Inc.

Greetings and welcome to Park City Group Fiscal Fourth 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. And please note that this conference is being recorded. It is now my pleasure to introduce your host, Rob Fink with FNK IR. Thank you, Mr. Fink. You may begin.

Thank you, operator, and good afternoon, everyone. Thank you for joining us today for Park City Group's fiscal fourth quarter earnings call. Hosting the call today are Randy Fields, Park City Group's chairman and chief executive officer, and John Merrill, Park City Group's chief financial officer. 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 remarks are subject to risks and uncertainties. Actual results may differ materially. 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, Park City Group 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, Rob, and good afternoon, everyone. We are a SaaS company. The success of our transition to a SaaS company is clearly evident in our profitability. We increased our income from operations by 52%, even as our consolidated revenue decreased due to the planned elimination of essentially all non-recurring revenue. This resulted in a significant increase in net income, excluding the forgiveness of our PPP loan last year. We are systemically profitable with now 20-plus consecutive quarters of gap profitability despite a market cycle, a global pandemic, and a looming recession. Our strategy remains very simple. Grow recurring revenue, control costs, increase net income, accelerate EPS, buy back shares, and drive cash. Recurring revenue grew 6% for the year and 8% for the quarter. We ended the quarter with an exit rate of annual recurring revenue of $19 million. That means signed contracts in hand at June 30, 2022 that are billed monthly multiplied times 12 will generate $19 million in recurring revenue in the subsequent 12 months if we just stand still. Simultaneously, we have controlled costs and increased productivity, reducing our annualized cash spend to approximately $11.8 million, or 66% of our annual recurring revenue. What do I mean by productivity? Instead of using someone else's software, we built our own tools, including artificial intelligence capabilities, to facilitate these tasks efficiently and tailored for our specific needs. The result of expansion of our ability to focus on customers, reduction in third-party software costs, and continued improvement in internal productivity. As a result, our business is now quite easy to model. If you take our annual recurring revenue exit rate, call it $19 million, and add our target growth rate of 10% to 20%, it is pretty easy to determine our likely revenue in the next 12 months since we are effectively 100% recurring revenue with little customer churn. This does not consider any future opportunities, including traceability or other initiatives. As I have said before, it takes approximately $12 million in cash to run this place. In my view, cash spend and cash generation is more meaningful in determining the health and sustainability of the business. Cash spend excludes non-cash accounting costs such as depreciation, amortization, bad debt expense, stock compensation expense, and other non-cash accounting costs. As we have said before, going forward on each incremental recurring revenue dollar over and above our fixed cash cost, of roughly $12 million per year, 80 to 85 cents will fall to the bottom line. You can already start to see this materialize with an 84% gross margin in the quarter and $6.1 million generated from cash from operations during the fiscal year. In other words, our profitability continues to grow substantially faster than revenue. 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 fourth quarter revenue was $4.6 million, down 21% from $5.8 million in the same quarter last year. The decrease was due to the planned reduction of $1.5 million in one-time revenue like marketplace products that surged during COVID and other recurring revenue products and services that were non-core and eliminated. This frees 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. As I have mentioned, recurring revenue in the quarter grew 8% over the same period of fiscal 2021. Total operating expenses decreased 35% from $5.3 million in Q4 2021 to $3.5 million in Q4 2022. The decrease is due to lower marketplace costs associated with lower marketplace revenue, elimination of non-core revenue and its related costs, and continued expense discipline. Sales and marketing expenses increased slightly to $1.3 million at Q4 2022 as a result of higher sales travel for trade shows as COVID travel restrictions abate and customers are reengaging with in-person meetings. This is partially offset by other cost reductions. G&A costs were down 14% to $1.2 million due largely to the elimination of third-party vendor software and lower overall general overhead. For the fourth quarter of fiscal 2022, GAAP net income was $1.1 million or 24% of revenue versus $480,000 or 8% of revenue. So for the fourth quarter in a row, we have essentially doubled our net margin, nearly tripled this quarter. Net income to common shareholders was $950,000 or 5 cents per common share based on 19 million weighted average shares versus $333,000, or 2 cents per common share, based on 19.8 million weighted average shares. As of September 28, 2022, 18.46 million shares of the company's common stock was outstanding. You'll note we have reduced our capitalization by over 8% for the repurchase and retirement of shares, which I'll touch on in a minute. Turning to the full year numbers. Fiscal year 2022 revenue was $18 million, down 14% from $21 million in the same period last year for the reasons I already discussed. Recurring revenue as a percentage of total revenue was 97% for the year, or $17.9 million. This is a 6% increase over the same period in fiscal 2021. Total operating expenses decreased 25% from $18.1 million for the year to $13.6 million. Lower overall operating expense was the result of primarily lower marketplace costs and elimination of non-course spending and across-the-board reduction in total SG&A expenses. Sales and marketing expenses decreased from $5 million in 2021 to $4.9 million in fiscal 2022. The reduction in sales and marketing expense was largely the result of lower commissions due to lower revenue. G&A costs were down 10% to $4.7 million. Lower G&A costs were the result of lower rent expense due to cutting our office space in half from 10,000 square feet to 5,000 square feet, lower bad debt expense, elimination of third-party vendors, and lower overall general overhead. Income from operations was up 53% to $4.4 million. Full-year gap mid-income was $4 million, or 22% of revenues. versus $4.1 million inclusive of a $1.1 million gain on the forgiveness of our PPP loan in 2021. Excluding the gain, our year-to-date net income last year was $3 million or 14% of revenue. Net income to common shareholders was $3.4 million or 18 cents per common share versus $3.5 million or 18 cents per common share. 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. For the year, we generated cash from operations of $6.1 million compared to $5.4 million last year, an increase of 13%. Total cash at June 30, 2022 was $21.5 million compared to $24.1 million at the end of fiscal year 2021. We continue to repurchase our shares with a combination of cash and our line of credit. The company now carries approximately $2.6 million on its revolving line of credit. Last year, that balance was $6 million. In the fourth quarter, the company repurchased 192,747 shares at an average price of $4.78 per share for a total of $920,000. During the fiscal year, we repurchased $6.2 million in common stock. Since inception of the buyback program, the company has repurchased a total of $10.2 million worth of stock, retiring 1.71 million shares, hence reducing capitalization over 8.3% since 2019. During its fiscal 2022 board meeting, members increased the buyback by an additional $9 million. The company has approximately $10.2 million remaining on the $21 million total buyback authorization since inception. We are a SaaS company with over 28,000 customers, little churn, 100% recurring revenue, and 80-plus percent gross margins. We have a fortress balance sheet, including $21 million in cash, little debt, and a shrinking capitalization. Because of our systemic profitability, cash generation, strong balance sheet, and line of sight into recurring revenue and cash spend, the company is in a position to expand on its capital allocation plan to facilitate returning capital to shareholders. What do I mean by this? Simply put, we have what I call levers. Number one, continue to grow cash in the bank. A strong balance sheet gives peace of mind to our customers and rising interest rates yields higher interest income and hence higher EPS. Two, continue to opportunistically buy back common stock. Less shares outstanding means higher EPS, all things being equal. Number three, pay down debt. As interest rates rise, so does interest expense on debt. We may choose to continue to pay down debt. You have already seen the reduction from $6 million in 2021 to $2.6 million in fiscal 2022. Number four, pursue M&A activities. The company is acquisitive. As the economy compresses, valuations may become more reasonable for a bolt-on or as an entrance into a new vertical or add additional customers. Number five, retire the preferred. Number six, finally, issue a cash dividend. In September, the Board of Directors determined that it is appropriate time to return capital to shareholders via a quarterly cash dividend. Accordingly, the Board of Directors declared a quarterly cash dividend of $0.01 per share, or $0.06 per year, payable to shareholders of record on October 17 and to be paid on or about November 15. Based on the closing price on September 26, 2022, this represents an annual dividend yield of approximately 1.06%. Subsequent quarterly dividends will be paid within 45 days of the shareholder's record date of December 31st, March 31, June 30, and September 30. From time to time, the Board may increase the dividend depending on what lever is more favorable to shareholders at that time. Therefore, we intend to allocate a meaningful portion of our free cash flow to returning capital to shareholders through an ongoing dividend, opportunistic share repurchases, and the other levers I've outlined in our capital allocation plan. That's all I have today. Thanks, everyone, for joining. At this point, I will pass the call over to Randy. Randy?