ReposiTrak, Inc.

Greetings. Welcome to the Reposit Track Fiscal Second Quarter 2023 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, Jeff Stanliss with the FNK IR. Mr. Stanliss, you may begin.

Thank you, Operator, and good afternoon, everyone. Thank you for joining us today for the Repositrack Fiscal Second Quarter Earnings Call. Hosting the call today are Randy Fields, Repositrack's Chairman and CEO, and John Merrill, Repositrack's CFO. Before we begin, we'd like to remind everyone that this call could contain forward-looking statements about Repositrack 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. Repositrak's remarks are subject to risks and uncertainties, which 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. Repositrak 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 RepositTrack.com to access the 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. The December quarter fiscal 24 marks another anniversary of our evolution to a simple, easy-to-model, and highly predictable business. This is what Repositrack is today. Looking back on our strategy, our goal was to reduce unpredictable and lumpy revenue in exchange for growth in annual recurring subscription revenue, a reduction in operating expenses, return capital to shareholders, pay off debt, drive cash, and make the business easy to model. I am confident as we again embark on execution of this new opportunity, traceability, our strategy will not change. In two to three years, as we look back, it will be more obvious that it was the right decision. Incremental recurring revenue, a careful focus on expenses, maintain margin, grow net income, and grow EPS even faster. As we did some years ago with compliance, our strategy again requires us to scale quickly for the largest opportunity in the company's history, traceability. We have done it before, and we are up to the task to do it again. Before jumping into the quarterly numbers, in my view, it is important to point out to shareholders the path we forged over time and revisit some remarkable achievements we accomplished. Since 2017, we have grown recurring revenue 10% per year on a compounded annual growth basis. Simultaneously, we increased recurring revenue from just 53% of total revenue to roughly 100% at the end of fiscal 2023. Despite overcoming more than $1 million in high-touch, low-opportunity revenue, the results are quite remarkable. During the same period, we reduced our operating costs by 28% or $5 million, driving an 80-plus percent gross margin and more than a 25% net margin. Since 2017, net income has grown from less than $700,000 to $5.6 million at the end of fiscal 2023, a 36% compounded annual growth rate. Full year earnings per share was just a penny just a few years ago, and now is $0.27 a share, a compounded annual growth rate of over 77%. Meanwhile, during the same period, annual cash from operations accelerated from just $500,000 to over $8.8 million at the end of fiscal 2023, a CAGR of 51%. Meanwhile, our current ratios has grown from a mere 2X to over 6X, meaning our current assets more than cover our current liabilities over six times over. It is truly amazing to see what this little company has achieved in such a short period of time. Anyone who knows me knows that I'm not a tout. As I've said before, the proof is in the numbers. We have an extraordinary opportunity in front of us, and I believe our ongoing strategy will continue to reflect well on shareholders. Again, we will continue to grow recurring revenue, not just traceability revenue, but continue to grow all lines of business. We will continue to increase profits, generate cash, and return capital to shareholders, all while ramping the traceability initiative, which has the potential to more than double our top-line revenue over the next several years. For several quarters, we have been discussing the FDA's FSMA 204 mandates and the impact this will have on the food industry. The FDA's mandate is right around the corner, scheduled currently for 2026, but we are now seeing an industry reaction far sooner than we anticipated. The traceability mandate is increasingly being driven by the market, from the top down, rather than from government regulations. As we have long said, retailers want end-to-end traceability. Track and Trace is a risk mitigation initiative for retailers, making it easier to identify products in the event of a recall, reducing exposure to costly lawsuits, and improving overall compliance. Retailers have embraced this FDA requirement, and now you are seeing them drive adoption through their supply chain. Randy will add more color on this in a moment. For us, the demand for traceability is rapidly accelerating, as you have seen in our steady cadence of press releases announcing suppliers joining the RTN. There are many, many more in the queue. The revenue from these suppliers is currently 3% to 4% of our quarterly revenue, up from just 1% to 2% six months ago. As you've seen, we are investing heavily in sales and marketing, both headcount and advertising awareness, to process the pipeline. The current queue will take us about a year to process, based on how quickly suppliers move, and more are being added to the pipeline every day. It is important to note that once we have worked through this initial onboarding process, incremental additions will generate very little added cost. Again, we've been through this process before with our compliance solution. We have onboarded hundreds of traceability suppliers since we began this journey in April of 2023. The current acceleration further validates our decision to clear the decks, pulling resources off non-core, high-touch, low-opportunity business and reallocate them to much longer-term, lucrative, and time-sensitive traceability revenue. This decision is enabling us to quickly capture market share, further reinforce the moats around our business, make the RTN the best low-cost and only choice. Over the next year, investors will see this decision once again manifest into accelerated revenue growth, net margin expansion, and much higher levels of cash generation. Let's get to the quarterly numbers. Total revenue is up 8% for the December quarter. Recurring revenue was 99% of total revenue. Recurring revenue increased 8% for the quarter. Operating expenses increased 9% as we invested heavily in the RTN. G&A costs were up 8%. Gap net income increased 15%. Gap net income to common shareholders increased 17%. Earnings per share increased 17% to 7 cents per share. Quarterly cash from operations was $1.3 million, and we continued to return capital to shareholders. During the December quarter, we bought back approximately 22,000 common shares at an average share price of $8.79 per share for approximately $194,000. We also bought back 70,000 preferred shares for a stated redemption price of $10.70 per share for a total of $750,000. We have over $23 million cash in the bank and no debt. And we continue to pay a quarterly cash dividend, boosting at 10% as you saw the board approved in November of 2023. As we've said, our profitability and cash will continue to grow. Consistent with our strategy, our focus is on increasing operating leverage. This requires us to continue to make strategic decisions to drive high margin incremental revenue while keeping costs in line and driving profitability and cash. As I previously announced, we ended our June 30, 2023 fiscal year with an exit rate of annual recurring revenue of $20.3 million, meaning as of June 30, 2023, those contracts in hand, billing monthly times 12, will generate $20.3 million in annual recurring revenue in the subsequent 12 months. At the end of September, that number increased to $20.8 million. And at the end of the December quarter, our exit rate of annual recurring revenue increased to $21.4 million. Once again, this means, barring any unforeseen changes, as of December 31, 2023, contracts in hand billing monthly times 12 will generate $21.4 million in annual recurring revenue in the subsequent 12 months. Keep in mind, this is the subsequent 12 months and not a forecast for the quarter ending June 30, 2024. I believe the momentum we are seeing with traceability customers faster than I anticipated will only accelerate further. We're confident that traceability will generate even more meaningful revenue in the next 12 months. As I've said time and time again, it takes approximately $12 million in cash to run this place. Even with our investment RTN during the six months ended December 31, 2023, our gross margin and net margin still remains above 80% and 25% respectively. Again, our strategy remains very simple. Take great care of the customer. Grow recurring revenue, rationalizing costs with the opportunity of future revenues. Control costs. Increase net income. Accelerate EPS. Buy back shares, both common and preferred. Drive cash and return capital to shareholders in the form of a cash dividend. Turning to the quarterly numbers. Fiscal year 2024 second quarter revenue was $5.1 million, up 8% from $4.8 million in the same quarter last year. Effectively, all of our revenue was recurring, more than 99%. Recurring revenue contribution from traceability customers increased from 1% to 2% of total revenue in the June quarter to 3% to 4% of total revenue in the December quarter. Total operating expenses increased 9% to $3.9 million in Q2 2024, which I already commented on. G&A expense increased 8% due largely to higher costs and employee benefits, liability insurance, and compliance costs associated with security, confidentiality, and other requirements to protect customer data. For the second fiscal quarter of 2024, Gapnin income was $1.5 million, or 28% of revenue, versus $1.3 million, or 27% of revenue. Gapnin income increased year-over-year by 14%. Net income to common shareholders was $1.3 million, or $0.07 per common share, based on 18.2 million weighted average shares, versus $1.1 million, or $0.06 per common share. Shareholders should also take note that we have reduced our capitalization by over 10% since we initiated our stock buyback plan some four years ago. Turning to the six-month numbers. Revenue for the six months ended December 31, 2023, increased at $10.2 million, up from $9.5 million in the same period of 2022. Total operating expenses increased 10% from $7.1 million to $7.8. Net income increased 11% to $2.8 million. Net income to common shareholders increased 12.4% to $2.6 million. And earnings per share increased 18% from $0.12 a share in 2022 to $0.14 per share for the six months ended December 31, 2023. Turning now to cash flow and cash balances. Total cash of December 31, 2023 was $23.3 million compared to $24 million at the end of fiscal year 2023. Total cash reflects we're purchasing over 2.2 million common shares, redeeming 70,000 preferred shares in the quarter, paying off over $6 million in bank debt, and returning over $1.4 million to shareholders in the form of a cash dividend since inception. Fiscal year to date, we generated cash from operations of $2.5 million. In the second quarter, we purchased approximately 22,000 common shares at an average price of $8.79 per share for a total of approximately $194,000. The company has approximately $8.3 million remaining on the $21 million total buyback authorization. During the same period, we purchased 70,000 preferred shares at the stated redemption price of $10.70 per share for a total of $750,000. The remaining amount of the preferred stock redemption is $8.2 million. As previously announced, the company anticipates redeeming all of the preferred issued and outstanding over the next three years. We paid out our December 31 quarterly cash dividend on February 1, 2024. As we previously announced, subsequent quarterly cash dividends will be paid within 45 days of the quarter's end of March 31, June 30, September 30, and December 31. Again, we will take half the annual cash generated from operations and return it to shareholders in the form of a dividend, buying back additional shares of common and preferred shares, or increasing the dividend, whichever lever makes the most sense at that time. The other half goes in the bank and will be strategically used to fund initiatives like traceability or M&A opportunities if the right opportunity comes along. From time to time, the board will continue to evaluate our capital allocation strategy and may adjust to different levers, whichever lever is more favorable to shareholders at that time. That's all I have today. Thanks, everyone, for your time. At this point, I will pass the call over to Randy. Randy?