ReposiTrak, Inc.

Good afternoon, everyone. Thank you for joining us today for the Repositrak fiscal third quarter earnings call. Hosting the call today are Randy Fields, Repositrak's chairman and CEO, and John Merrill, Repositrak's CFO. Before we begin, I'd like to remind everyone that this call could contain forward-looking statements about Repositrak 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. Repositrak's remarks are subject to risks and uncertainties, and 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 repositrack.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, Jeff, and good afternoon, everyone. For those of you who know me or have listened to our conference calls have heard me say the proof is in the numbers. That is especially true this quarter. We demonstrated during the quarter that we have and will continue to execute against our stated strategy of to grow annual revenue at a double-digit pace somewhere between 10% to 20% and grow profitability even faster. This allows us to generate more cash and return more capital to shareholders. The hard work of the past two years to position Repositrak as the go-to source to address the track and trace opportunity while simultaneously growing all lines of business has not been easy to say the least. And by no means we are claiming mission accomplished. We have plenty more work to do. Remember, we had to make many tough decisions along the way in order to efficiently allocate resources to grow our network. Some of those decisions were not popular with investors, like sunsetting products and services and walking away from high-touch, low-opportunity revenue to make room for growth. However, the proof is in the numbers, and the results we are reporting for the quarter and year-to-date are reflected in growth in top-line and bottom-line and the KPIs in between. Previously in the second fiscal quarter, we pointed out that our deferred revenue has increased 70% to $4.2 million. As most of you know, deferred revenue is an indicator of future revenue yet to be recognized. Our contracted revenue, and hence deferred revenue, is comprised of all of our solutions, not just traceability. If their services are provided in accordance with the contract, that earned revenue will be layered in over the subsequent 12 months. As you can see by our revenue growth, that earned revenue is accelerating. Revenue grew 16% in the third fiscal quarter to $5.9 million, and we continue to carry a meaningful amount of deferred revenue on our balance sheet, $3.7 million as of March 31. These contracts will be converted to recognized revenue over the next 12 to 15 months, and obviously we're adding more and more contracts every week. What you see today is just a portion of the growth we expect over the next few years. As a result, Randy and I are confident that Repositrak will continue to deliver on our goal of growing annual top-line revenue at a double-digit clip. Be clear, we are not a quarterly company. Some quarters may be higher or lower than others. However, we are more confident today than ever before that our goal to grow annual top-line revenue by 10% to 20% is here to stay for the foreseeable future. While traceability is accelerating, grabbing headlines, and serving as the current catalyst, we are experiencing growth in all lines of business, traceability, compliance, and supply chain. While traditional sales of one service to solve one customer problem continues to grow, our cross-selling initiatives are gaining momentum for obvious reasons. Why? We have an end-to-end solution, so once we receive customer data and they are successful on one solution, they recognize why not expand to another. Yes, increased but measured growth is important, but in my view, generating earnings and cash is the ultimate focus. Why? In the third quarter, we translated 16% revenue growth into 27% net income growth. Put another way, we converted $828,000 in incremental revenue into $415,000 in incremental net income. That's gap net income, not adjusted EBITDA or some other qualified metric. So, 50 cents of every incremental revenue dollar fell to the bottom line. Those results reflect the increased cost for investments in marketing, technology, and onboarding of new customers that we believe will flatten over time. Currently, our revenue contribution margin above fixed cost is about 50%, but our goal is to get closer to 80%. As many of you have heard me say time and time again, it takes $12 million in cash to run this place. Our goal is to deliver 70 to 80 cents profit on every dollar of incremental revenue over the annual $12 million in cash costs. That is cash costs excluding stock compensation expense, bad debt, depreciation, amortization, and other non-cash accounting costs. That's the goal, but we ain't there yet. Again, our strategy is simple. First, take exceptional care of the customer. Second, execute flawlessly, grow recurring revenue, balancing cost with opportunity, increase profitability, use cash to buy back common stock, redeem the preferred, and do it all with no bank debt. At the same time, return capital to shareholders through an increasing cash dividend. Third, we continue to build cash on the balance sheet over $28 million as of March 31, 2025. Okay, let's get to the numbers. Total revenue for the third quarter of fiscal 2025 was up 16% to $5.9 million versus $5.1 million in the prior year. Recurring revenue increased 15% to $5.8 million. The percentage of recurring to total revenue declined from 99% to 98% due to an acceleration of customer onboarding and the one-time setup fees associated with them. Operating expense increased 7%, reflecting our ongoing investment in RTN, higher commissions due to higher revenue, and increases in insurance and benefit costs for employees. Cost of revenue increased 10% due to investment in developer resources to further expand our wizard, a proprietary self-implementing platform to allow suppliers to onboard with little or no human interaction. Sales and marketing increased 4% due to continued investment and awareness of our solution suite of traceability, supply chain, and compliance. As awareness increases, we believe our marketing spend to educate the industry will flatten out over time. G&A increased 8%. This increase reflects increases in company benefits for employees and other insurance costs incurred during the quarter. Depreciation and amortization increased 14% due to leased equipment for our newest data center located at Switch Reno, Nevada. Switch Reno complements our main data center located at Switch Las Vegas and eliminates our corporate headquarters data center in Utah. Income from operations increased 43% from $1.3 million to $1.8 million. Gap net income increased from $1.6 million to $2 million, up 27%. Gap in income to shareholders increased from $1.4 million to $1.9 million, up 33%. Earnings per share basic and diluted was $0.10 per share. This compares to $0.08 per basic and diluted share last year. Cash is $28.1 million at the end of the March 31 quarter. Keep in mind the cash balance is net of the more than $25 million in capital we've returned to shareholders through a common stock cash dividend that has increased 20% since inception. It also includes the redemption of half of the preferred thus far, buying back 2.2 million common shares and paying off over $6 million in bank debt since we instituted our capital allocation strategy only a few short years ago. Turning to the fiscal year-to-date numbers, Total revenue increased 10.3%, $16.8 million versus $15.3 million. Recurring revenue increased 9% to $16.6 million. Total operating expenses for the fiscal year to date were up 6% due to investments in RTN, increased insurance and employee benefit costs, and investment in development of wizard tools. SG&A costs were up $419,000 or 5% due to investment in our growth. Fiscal year to date income from operations was up 25%, $4.6 million versus $3.7 million. Net income to common shareholders increased 24% from $4 million to $4.9 million. Earnings per share for the fiscal year to date was 27 cents per basic share and 26 cents per diluted share. This is based on 18.2 million basic shares outstanding and 19.1 million shares diluted respectively. an increase in EPS of over 22%. We remain confident that our continued revenue growth will double our historical $20 million annual revenue over the next several years, deliver at least 80% gross margins and 30% net margins. If we are successful, this will translate to higher earnings per share and significant cash generation. Turning to our capital allocation plan. Over the first nine months of the fiscal year, $3.7 million has been returned to shareholders in the form of cash dividends, common stock repurchases, and preferred stock redemptions. Since inception, we redeemed $4.6 million in preferred stock with roughly $4.2 million to go. At our continued pace of redemption, the preferred stock will be paid off on or before September 2027. As I have said before, the Board will evaluate our capital allocation strategy, making appropriate adjustments based on the approach most beneficial to shareholders at that time. Our goal is to continue to return 50% of annual cash from operations to shareholders and putting the other half in the bank. In summary, our strategy has not changed. Deliver flawless execution for our customers. When the customer is successful, they grow and we grow. grow recurring revenue, balance cost with opportunity, continue to increase profitability, EPS, and cash, return more and more capital to shareholders. Yes, it's really that simple, and proof will be in the numbers. That's all I have today. Thanks, everyone, for your time. At this point, I'll pass the call over to Randy. Randy?

Thanks, John. Traceability is continuing to unfold as we expected in terms of timing and process. As we've said, however, the scale of the long-term opportunity is proving to be far larger than we originally expected. From the very beginning, we've been clear that the FDA's deadline for compliance enforcement was too aggressive, and the industry required more time. While large retailers were positioned to comply on time, the majority of smaller distributors and producers needed more time to fully understand the requirements, assemble the data, ensure the accuracy of that data, blah, blah, blah, and align their processes. Thankfully, the FDA extended the enforcement deadline by 30 months, which will give us the time to make sure that the onboarding that's needed progresses smoothly, the data is accurate, and systems work as everybody hoped for. This extension is exactly what we were hoping for. Importantly, while the enforcement deadline was extended, the law has not changed. And despite the FDA's decision, the pace of adoption has remained the same. It's a market competition issue, not a regulatory deadline that's driving adoption. Market forces have taken over. In other words, what I mean by this is that leading retailers, Kroger, Albertsons, Walmart, Target, and others, have made food safety a business priority. They're investing in all food traceability, not just to comply with the FSMA 204 regulations, but because it protects their brand, and frankly, it strengthens their operations. Once they've made this commitment, the rest of the industry is now following. The result is that suppliers who work with these retailers need to be traceability capable, and we're solving that need for these suppliers. Initially, we believed that the smallest ingredient suppliers would not be included in the initiative, but over the last few months, our inbound inquiries have shifted from retailers primarily pushing suppliers to us to suppliers pulling their downstream suppliers to us. This added momentum is aligned perfectly with our execution strategy and, frankly, our long-term expectations. RepositTrack has emerged as the go-to solution to meet both the FDA demands as well as the individual preferences of retailers, all in a way that suppliers can manage efficiently and inexpensively. We are arguably the largest operating traceability network in the world. Our scale in terms of numbers of participants in the network is certainly drawing the attention of the whole industry. This is leading to new partnerships as well as more and more commercial inquiries. Importantly, all of our major solutions, traceability, supply chain compliance, etc., are all built on a single technology platform. This fact creates enormous financial and operational efficiencies for us, and it continues to show up in our financials. Simply put, we have amazing operating leverage. Even more importantly, the common technology platform is proving to be important for our customers. Over the last few months, we've increased our cross-selling initiatives, and it's delivering increasing results, contributing to our overall growth across all parts of our business, not just traceability. Meaning, if I am a customer and Repositrak has my data for compliance initiatives, I already did the work to implement synchronizing data scrubbing vendors, and ensuring the accuracy of data, why not expand into other Repositrak service offerings, such as traceability or supply chain, and vice versa? That's the beauty of our strategic vision, executed both with automation and a single flexible platform. Automation is our efficiency strategy. Today, roughly two-thirds of our new traceability customers are joining the Repositrak traceability network through our automated wizard with little or no human intervention. I doubt we'll ever get to 100%, but our goal is to make it easier and easier over time for customers to join through the wizard. If you remember a year ago, we set some objectives in terms of what this wizard might do for us, and it certainly has already exceeded our expectations. Our accomplishments to date are precisely what we've been communicating to shareholders for some time. maintaining all along that the needs of our customers have and always will come first. We have and will continue to add new products to the platform based on our customer needs. We have lots more ideas than the hopper, take my word for it. We've communicated many times that our goal is growing revenue at 10% to 20% annually and earnings growth much higher. As John pointed out, we generated 16% revenue growth in the third fiscal quarter, and 10% in the fiscal year to date. Yes, some quarters will be higher and some lower. However, we maintain that a 10% to 20% annual growth rate in revenue enables us to provide maximum value to the shareholders without jeopardizing the impeccable customer service to our customers. That's where we are today. That balance of customer service and shareholder value is frankly reflected in the numbers. In the third quarter, revenue grew 16%, but operating expenses only grew 7%. Much of this was related to onboarding of new customers, which have higher one-time costs. As a result, we grew operating income 43%, gap net income 27%, and net income to common shareholders 33%, all on the 16% revenue growth. We're converting revenues to cash at an accelerated rate. We've generated close to $7 million in cash from operations during this year so far. As we said before, we expect to return about 50% of our annual cash generation to shareholders through dividends, stock repurchases, and the other half will go in the bank. We've said that for some time and we've done it for some time now. We do not see that this is going to change in the foreseeable future. Nonetheless, we have lots of work to do balancing our opportunities with our incredible customer service. Once again, our business model is simple. Our customers are priority one. Deliver success to our customers and they'll buy more. Buying more generates revenue and accelerates profitability faster and generates more cash. This enables us to continue to return more and more capital to shareholders and drive earnings per share. It requires a superior team and hard work, but it's really that simple. So with that, I'd like to now open up the call for questions.