Greetings and welcome to the Park City Group Third Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Dave Mossberg, Investor Relations representative for Park City Group, thank you Mr. Mossberg, you may begin.

Thank you, Devon. Before we begin, we will be referring to today’s earnings release, which can be downloaded from the Investor Relations page on the Company’s Web site at parkcitygroup.com. This conference 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 historical facts. Such forward-looking statements are based upon the current beliefs and expectation of Park City Group’s management and are subject to risks and uncertainties, which could cause actual results to differ from forward-looking statements. Such risks are more 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 the information contained in this conference call. Throughout today’s conference call, we may be referring to both GAAP and non-GAAP financial results, including the terms free cash flow, EBITDA, adjusted EBITDA, net debt, net loss and earnings per share, which are non-GAAP terms. We believe these non-GAAP terms are useful in the financial measure for our Company primarily because of the significant non-cash charges in our operating statement. There is a reconciliation of the non-GAAP results in the earnings release and on the Investor Relations section of our Web site. Our speakers today will be Randy Fields, Park City Group’s Chairman and CEO and Ed Clissold, Park City Group’s CFO. Ed?

Thanks Dave. Good afternoon everyone. Thank you for joining us on the call today. My remarks will cover our consolidated operating results for our fiscal third quarter ended March 31. I will also comment on certain cash flow and balance sheet items and then I'll turn the call over to Randy for his comments. I will begin by discussing revenue trends. Subscription revenue increased 6% to $2,600,000 for the third quarter and increased 15% for the first nine months of the year. Excluding ReposiTrak related revenue from the comparison our supply chain management services’ revenue grew 7% for the quarter and 18% for the nine month period. The pace of subscription revenue growth in the third quarter slowed a little as a result of a couple of factors. The first relates to the timing of a trial that ended during the third quarter last year that made the comparison difficult, the second factor which had a smaller effect on our growth rate was related to the bankruptcy of the customer. Excluding these factors our growth would have been 16% for the quarter. As we've said before while our quarterly revenue comparisons will continue to be uneven we believe the strength of our business is better measured over longer periods. Other revenue was $750,000 for the quarter which was a 25% increase from the same period last year and represented approximately 22% of total revenue. We continue to expect that contribution from other revenue will remain at approximately 20% to 30% of our total revenue. Overall total revenue increased 10% for the quarter and 13% for the nine month period. Moving on to operating expenses, total operating expenses were $4 million, which was an increase of $470,000 or 14% year-over-year. Given the increasing amount of coding and trial activity we have…

Thank you, Ed and Dave. Lot to cover, a lot of things happening, so I'm going to possibly talk about as fast as Donald Duck I apologize for that. I think the net view that we have of 2015 is as we originally expected this is going to shape up as another record year in growth rate for Park City Group as well as looking forward our outlook is in fact getting even more exciting as I think you will see from my commentary towards the end of this presentation. We are on track for another record year of growth in our supply chain services the ReposiTrak growth as we recently announced is accelerating we actually beat our 2,000 connection goal for the year, several months ahead of plan, we have in the current quarter had several important expansions to our footprint meaning new categories to support the supply chain business and its future growth there has also been some very important developments in ReposiTrak which I will cover momentarily. As Ed mentioned the cash flow turned positive again as we said that it would and obviously we anticipate that it’s going to grow from here. And the financing that we did and I'm going to speak to that a little bit we will certainly from a customer perspective improve the objects of our balance sheet. So let me review each of those things in a little bit more detail. First our supply chain services business as Ed mentioned year-to-date we're growing at the record 18% rate and in the current quarter given where we see that we are you can actually expect as we do that the growth rate grow for the year would be higher than that but we're seeing an acceleration in our growth rate in the…

Devon can you open the call for questions now?

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from the line of Todd Mitchell with Brean Capital. Please proceed with your question.

I want to talk about scaling. Because I think that is kind of what's on everybody's mind here in terms of investors. And next year, we expect you guys to sort of scale this business the food safety business significantly and I want to know, kind of how can we -- I guess how are you thinking about it as in terms of how fast you can grow the business and moreover what are the levers that you can do to sort of manage that growth, without it getting ahead of you? And I guess it's not necessarily from my perspective as number of connections but as you have said, as you bring on more suppliers as you bring on more hubs you get more connections organically but kind of is there sort of a metric for a number of the suppliers you can be on-boarding at once and is that the right way to be thinking about it and how can you manage that growth, can you kind of address that question?

Okay, good don't forget your second one. Yes here is how we think about it. There is three avenues of if you will of on-boarding, that give us leverage against just people. The first is good training of the people and good technological tools for the people to use and we don't talk about it but we really focus internally on internal levels of automation so that any of our account executives can be more effective getting calls through, getting them logged, all of that kind of locking and tackling stuff and frankly there is changes every week to internal process and technology to improve their leverage. Second lever on the scaling ability is as we add hubs, as you mentioned, as we add wholesalers and I'm going to guess sometime this summer, we're going to begin to go after the retail community. But over the next year in the perfect word, we'll probably add five or six or seven more hubs potentially as we do that it means, each time a supplier signs up consider signing up with one hub as you pointed out, he will be signing up with two, three, four, five, seven, et cetera. So that leverages each phone call and then finally and equally importantly the vendor portal will be an automated way of signing up we won’t even have to talk to people. So in another words when somebody goes to do business with a new wholesaler or ultimately retailer if they use our portal, they're actually signing up for ReposiTrak to protect the wholesaler or retailer to make sure all the paper work is correct and fully complaint before they start doing business. So, we really have three levers against the automation of the on-boarding process, all three of those count. So, we are still very optimistic that we can do, we can get this thing over the next four or five years to tens of thousands of connections per year at least we're beginning to see the pathway from here to there I am less worried about scaling than I was a year ago, because a year ago we didn't have the experience we were using kind of an outsource model, we've brought in house and we've done a hell of a job at getting it up and rolling. I am sorry let me -- one other very important characteristic and we just don't know how to measure this yet. We spend a lot of time with our customers, helping them get compliant, it's not a -- it's a system that alerts people that they're not compliant but we become human nags. Our job is to help people become compliant to reduce risk, and we think that's an important measurement and therefore we're indeed outreaching, outbound calling to help people see that they are missing this or missing that, or this thing is out of date et cetera. So, there is a fair amount of handholding in what we do.

I mean that, that was kind of going to lead to my second question I mean, if you're seeing high levels of the non-compliance as you bring agreeing suppliers on board, now how does that not sums up the system and inhibit scale?

Only an analyst would tell you that. Meaning dumping up the system is what we call being effective. Literally I believe three years from now if there's a competitor in the marketplace we're going to be able to say the following. You can use any system you want, we have the proven system. We have the one that will take your suppliers as we have demonstrated thousands of times by then, from a 75% non-compliance rate and our goal is to get it down to 10 or 15 here in the next few months. There will always be some non-compliance for sure, but if we can get it down to de minimis, we are the superstar in this industry by way of efficacy. So we're getting very effective at doing that and remember once somebody is really complaint it's much easier to keep him there, so I don't see that at this point as slowing that down very much I see it as part of our service that gives us efficacy and efficacy is going to become important. So we're a little ahead of the curve but I don't see it as problematic and especially from a cost perspective. I wouldn’t have walked out on the limb and said next year we're going to be GAAP profitable if I thought our costs were not going to be relatively flattened and that our revenue wasn't going to be growing quite rapidly. So I think the proof will be in the pudding Todd and my confidence in being GAAP profitable next year not just non-GAAP profitable but GAAP profitable as I believe the cost that we foresee in ReposiTrak even with a much greater number of suppliers and connections next year, in spite of that we will be GAAP profitable.

Well then from there I just kind of wanted to ask about how you view this as Ed mentioned that what you're seeing is your suppliers are asking you to bring or your suppler is asking you to bring suppliers on down channel, it is kind of going down vertically as opposed to a horizontally. I guess the question is, how does that impact it in the sense that, wouldn't that have a negative impact on your ASP wouldn't it also mean no more connections but actually fewer payors and also do you find lower levels of compliance the further and deeper down into the supply chain we go?

Let me reverse those three questions, because I can remember them more easily. The compliance rate is surprisingly high, it's actually higher than we're seeing with level one suppliers. I can't tell you why that's true but we're surprised that suppliers to the suppliers and maybe it's because they have fewer, in other words if you're a wholesaler you might have a 1,000 or 2,000 suppliers and kind of keeping them all in line has been problematic and if you're just a supplier you might have 50 to a few 100 suppliers it might be easier, I don’t know why but it's better compliance. So that's the answer to that. Yes it's definitely impacts our annual subscription pricing so our ASP goes down the more down chain connections that we make but in truth it is, -- these guys were going to come on, we anticipated originally that it would be very orderly. Meaning we thought first you do all the level ones and then you do the level two and then you do the level three. So while it seems to be happening now is, yes it’s bringing down our ASP so we have to do more connections to make a buck, but the efficacy of the system is being demonstrated to our hubs at a much higher value proposition because now they can see all the way down and secondly the proliferation, is we're just accelerating something that would have happened in two or three years anyway so, we’re okay with it. We just have to adjust to it and be able to forecast against it but it's a good thing. I was a little afraid and if you remember a couple of conversations ago on these calls I said, I don't know how it will work as we move down the chain, I just wasn't, I knew we needed to get there but the utilization by level ones for their level twos is so far, it's a limited subset, it's you know, some number of 100s of these guys has been very-very good. So I feel pretty good about it, and I missed one of the components of your question.

Well, I mean doesn't it, -- if you're tapping the number doesn't it also, are they getting more out of you beyond getting a lower ASP?

Well, we're pricing, the first couple we did we did just to find out how it would work. We just literally wanted to see how it would function. But the revenue cap really doesn't come into play anymore we're pricing it in a way that will remove that revenue cap for us so in the long run again we're just fine. And by the way I think I mentioned in my commentary that shortly on the ReposiTrak Web site there will be the full length interview as well as maybe a short one with this company it is called Red Diamond and this is the guy who volunteered to talk about how important ReposiTrak is to how they do business. He is a genuine expert and you can tell it from what he did he loves this thing. That’s the best news I probably had about ReposiTrak in a year. That's great news when somebody who originally was forced to use it, turns around and goes, 'this has changed my life', 'this has changed our business'. He'll tell you in this thing that they thought they had about -- I can't remember I'm going to make this number up, I think he said, I thought we had about 150 suppliers and then I found out we had like 300 suppliers. And so, I've learned a lot about our supply chain because of ReposiTrak I've been able to reduce my labors. His economics have been stunning. So in the long run we've got a -- we have to find ways like the portal et cetera to make it so attractive from a business perspective what ReposiTrak charges is a non issue.

And the last question here, in terms of your sort of entry into the pharma category as you said I'm not going to ask you what you think the opportunity is but what is the incremental plus and what is the risk of loss of focus?

Let me answer the second one first, it's right in our wheelhouse. It’s the same technology base we hired a person recently from Underwriter Labs whose specialty is that she is very knowledgeable, very well connected, Levitt our partner in ReposiTrak is about as well connected in pharma as an organization can be it's their specialty. So, I don’t think it takes us off focus at all because it is and look there is yet the nutraceutical business which you may have read about recently too, they've got their share of problems, so that one is also going to come up and we believe that at the end of the day, our customers, the hubs, the retailers of the world ultimately would rather have a system doing all of this than one system for each type of product. They don't have the ability to manage multiple pieces of technology. So if we can cover the waterfront of track and tracing compliance for them, we will win. So in fact recently this is very interesting, we recently met with one of the largest supermarket chains in the U.S. They'd heard about us, they called us in and they said, here's our problem, we have four different systems trying to do stuff, can you guys find a way to replace all of those, in terms of track and trace and compliance and all that stuff. So I think what will be interesting to people is if we can demonstrate the ability to work across all their product categories. So I don't see it as a distraction in any sense. How big is the opportunity, I literally have no idea, honestly I don't, I know that the industry as a whole isn't as big as the supermarket industry in revenue but there's a lot more dollars sloshing around. Take a look at your average prescription cost. There's more money sloshing around. It's different than retail because manufacturers are very powerful in that industry which is not as true in retail food. So it will be a different business model as I mentioned we're going to step into it pretty gently. We're going to work with one company, one of the most, I assure you, you know their name it's one of the four or five largest drug companies in the planet and they're convinced that this is going to work, so we're convinced, they're convinced, that doesn't mean this will work but it's pretty likely to work. So we'll just have to see. We're going to do it very carefully but I'm, as I say it was only fair to tell you about it, tell the world because I looked kind of dopy from two years ago going, hi we are going to try this food safety thing too. I think this has every bit as much potential as food safety does.

Thank you, our next question comes from the line of Robert Kecseg with Las Colinas Capital Management please proceed with your question.

Okay, I got a couple of questions on the press releases for the quarter and back in January you announced a national retailer with 20 DSP vendors. So is that revenues for the company now or is that like a test that goes on for a period, can you…

No, that's revenues, and that particular co-relation is doing very-very-very well with us, very well.

And then, the next one you mentioned was the cellphone vendor with national retailer, so this is where you actually got business from a vendor and brought you to a retailer?

Yes, let me tell you a little bit about that. That's a cultural thanks for pointing it out Bob it's a cultural shift for us. We've been, as you can imagine, we tend to be retailer centric, thinking about the retailer's problems first and the supplier's problems second. In this particular instance let me describe, let me give you the background because it's cool. The supplier who was required to work with us by the retailer so it started out with a, ugh, got to work with you, got a call from the retailer and the retailer said to the supplier, you are way behind your sales plan like way behind and what in the hell are you going to do to get do it was not one of those calls you want to get into your supplier and what are you going to do about it? So, the guy looked at our data, he called us in to his credit, and what we showed him was that he had out of stock, older stock, he had everything wrong he just wasn't paying attention. And so he said can you help and we said well our next level of service would do forecasting and ordering for you and he said, 'I'm in'. And we got this up and running in thousands of stores in less than 90 days and it's beginning to make a difference. In other words he is now in stock things that he was out of stock he's not as overstocked as he was, so it's beginning to fix his business pretty significantly. Which means as you can imagine, now we can reasonably go back to this vendor and say well don't you have other places where you have a comparable problem and the answer's 'of course'. So we're beginning to be a bit more supplier centric than we have been historically. And we'll have to tweak the culture a little bit to get it right but we have, I don't know, four or five of those where we're more supplier centric than we've been in years.

Then the one in February, was it new area? Because you said national retailer involved with adult beverages. And I think you had something recently about adult beverages I didn't know if those were connected or not.

Yes, it's really the same. The adult beverage category is one that it's very difficult to execute if you're a retailer. And it's difficult to execute because it has multiple tiers of distribution. There's a manufacturer who cannot sell directly anywhere that I'm aware of with the possible exception of the state of Washington. Can't sell directly to a retailer, you have to have a distributor in the middle. So now you've got two levels of inventory to watch, the distributor's inventory and the retail inventory and so on and so forth. And there's laws literally laws about payment, you can't get paid by check in some states, it's a very complex business, and we’re very good at unraveling it. We work with one of the largest international retailers in the world and one of their major suppliers of beer where we helped set the prices and so we've got good experience in this domain and we're beginning to expand what we're doing with other retailers and potentially other alcoholic beverage providers. So, it's a great area of opportunity for us, we want to capitalize on it and it'll be a little bit of a struggle because it’s a very difficult business but we're going to work at it. Let me tell you what my take-away is, my take-away is that we continue to demonstrate that what we do works in almost any area. So pretty soon, I don't have to go to somebody and say well you know we can do these four things for you. I can say you have 150 categories of merchandize across your store, looks so. Keep the 10, let’s start with the 10 that bother you. So over time as our portfolio of capabilities expands our engagements get larger and the revenue goes with it.

So is something like that more of a longer term project before you really start getting very many vendors to use it?

Yes, it's a tougher sale for sure. Because if I say sometimes they don't even want to talk to you, they say this isn't our problem, this is a distributor problem and it is. Because each distributor, let me see if I can explain this, let’s suppose you're a national beer Company and you're working with Kroger, I'm making this up obviously. Well you don't do business with Kroger, you have 500 distributors that do business with Kroger and all you do is sell them product, so it's only, so you can have a price you can have two Kroger’s across the county line from each other, a 100 yards with two different prices on beer, because they came from two different distributors with a common mark up. It's a very -- it needs lot of plumbing which we can do. So we're going after it, we'll see how we do.

And then the next one that you had was in early March and I just have a note here, regional dairy. So this again was a supplier, right?

Yes.

That was looking for your service to be able to help them manage to the retailer.

Yes, we had very good luck taking suppliers to a retailer and saying look you're only doing it with this one retailer, he's 25% of your business. What about the other 75? So we're getting better at expanding our footprint not just with the retailer but within the supplier. And you can see after we've done this for another year or two that will take us to new set of retailers, right. And so on and so forth. So I said two year ago, we would begin to do that and first we had to get the track record of success, now we're getting that and that's why we're actually we only, we don't publish them all but we’re generating case studies now at the rate of more than one a week. So we're getting better and better at benchmarking what we're doing and demonstrating the result, very exciting. Good stuff.

Okay, great. So, are you, go ahead then.

No, that was it, I was going to say we can go on to another question, we have actually got another.

No, no I was like go head to the next caller, that fine thanks.

Okay, good. Bob, thank you as always.

Thank you. [Operator Instructions] Our next question is from line of Amit Dayal with H.C. Wainwright. Please proceed with your question.

I just want to touch on how ReposiTrak is contributing already, I have brought this up in the past but I guess, now the connections are getting sort of material. How much of the subscription revenues if it's part of that, was ReposiTrak and how should we be looking at maybe you guys putting this order to separate revenue line in the future or just some guidance on from a modeling point of view, in terms of how ReposiTrak revenues are being recognized and how we can think about projecting this out as separate revenue line?

I think it's -- I have two answers for the question. Remember right now, it is just this basically thick subscription of $400,000 a quarter, until we close the acquisition purchase which we anticipate will be June 30th. So no change there, so it's the same number every quarter and you won’t see any difference until the first quarter of next year. So, a way of thinking about this is we need to give you guys some ideas for how to model it and it would be like how many connections that what ASP sort of stuff and we haven't done that and I think we don't know not yet to do it. All we know is right now, the most important thing we can do is to get as many connections like eye balls as we can get here is why. The more suppliers on the system, the more people they're connected to, the easier the next connection becomes, because pretty soon we're going to be able to say to a retailer or a wholesaler, we already have 25% of your suppliers on the system. So it gets easier and easier to roll up more and more retailers and our reason for thinking that is about a year from now, we think retailers will begin to be aware that they're behind the curve in terms of FSMA et cetera and they have got to do something. We actually don't think it will happen very much a few will wake up here before the end of this calendar year. But I think it's probably a full year before the industry starts to wake up from oh my god we have got work to do here. So we want to be able to have as many people on as we can before then so that we can legitimately say to a retailer a big piece of the work is already done, we just have to put the name into the system and you will immediately have on to the dump zillions of your suppliers connected to the system. So, we're not focusing at the moment on the subscription rates as much as we're in getting into the numbers and so I can't give you the kind of guidance that I know you would want Amit and I wish that I could give you. But we will give us a few months here to kind see how things are shaking out we've got a couple of new hubs that are starting in the next couple of months. So, we've got tonnes of work ahead of us but before too long I think once we have more reliable numbers and information we will begin to give you a feel for how to model it. For now I'd just say the answer is more-more faster.

In terms of monetizing these connections, are we charging, all of the 2,000 plus connections we've made so far or just the higher level of suppliers?

Well, that's a good question. The first couple of level one guys, we let use the system at a reduced rate for their level two people. I believe one guy is on for three. Level one guy is some suppliers on we let him do it for free, he was our very first one we just wanted to see how it worked, then we charged people fixed fees and now we're confident enough of the efficacy that we'll begin to charge and what the full charge should be. Remember the way the current charging mechanism works the level one supplier should pay somewhere around $100 a month for his connections and then his suppliers should pay half of that $50 a month and their suppliers should pay $25 a month. So, we'll be over the next year we'll be moving as quickly as we can toward enforcing that pricing mechanism.

Thank you. Our next question is a follow-up question from the line of Todd Mitchell. Please proceed with your question.

I think it would be interesting actually to kind of tie the Bob's and Amit's questions together. First of all, do you plan to keep these two businesses separate from a reporting standpoint and second of all, where and how in your core business would you make less money from a customer other than churning and not being a customer anymore. Like why -- if you are adding all of these customers, why wouldn’t the business be growing faster or is there some way you could be going to do something and you’re done?

Well let's go back to the first question before I forget it. At this point the two businesses are so close to being one business remember most of the staff is on the Park City Group side and that kind of stuff. I just don’t want to stress out our accounting guys, remember we have a total accounting staff of three or four, four people. So we’ll probably just do a consolidated statement, that's the plan currently. And may be in some future years we could do something different but for now it will be just one. As far as why well there is three ways we can lose a customer, bankruptcy which happened to us, merger, which can happen because that reduces the combined, or somebody chooses to do business with one of our hubs. All three of those things routinely happen. And it’s just the nature of the business and if…

No, I mean in a core supply time changes.

No, that’s what I'm speaking about. It's interesting if you take a look at our growth chart in the press release you will see that over the last several years it is not exactly a straight line. There is dips and then it moves up so for example somebody may pay us to do a 200 store test out of 3,000 and then they might stop and evaluate and then six months later roll out to 4,000 stores. What you are really seeing is a mathematical artifact of we're still a small company I hate to use that word but it's true. Once we're devout $4 million a quarter of recurring revenue, my guess is you won’t see that, you'll begin to see variance in growth rate but not like you see today the volatility will go down because any given situation will matter a whole lot to this. I don’t need more I mean, it mathematically it’s just won’t move the needle. So, if that goes the way as we get larger so people just have to be patient and wait for us to get bigger in the life.

You never had an incident where someone's engaged you and said you know what I just don’t see the value?

No that did happen couple of years ago in fact four year ago we had a very large one customer and we seized to do business with them because they asked us to do something that we didn’t feel good about is the best way to put it. So we walked away from a large piece of business. And then probably 18 months ago we did a test with a retailer for whom we did terrific work and then they said but we’re getting out of these categories of business, so nothing really happened after we worked with him for about six to nine months. That can happen I’d say that’s legitimate as you decide you are not going to carry those products or we’ve had instances where somebody would say okay you guys work in direct store delivery but I am going to bring it into my warehouse that often happens too. It’s just part of the nature itself that it washes itself out with size just won’t be as martial.

There are no further questions at this time. I'd like to turn the floor back over to management for closing comments.

Okay. So, as I said, we’ve got two engines that are both accelerating, the current quarter and supply chain and in what we’re seeing in ReposiTrak both look excellent. I think we'll all be happy with the results for the full year. Importantly, we are on-track as you can imagine to get this done here before too long meaning June 30th will be closing on ReposiTrak. So we feel very good about how things are shaping up, great balance sheet. And I can’t think of anything to add Dave.

Thanks all for your interest. We’re available if you have any follow-up questions.

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time, and thank you for your participation.