Greetings and welcome to the Park City Group Fiscal Fourth Quarter and Full Year 2020 Earnings Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rob Fink with FNK IR. 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 and full year 2020 earnings conference call. Hosting the call today are Randy Fields, Park City Group’s CEO and Chairman; and John Merrill, Park City Group’s CFO. 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 management are subject to risks and uncertainties, which could cause actual results to differ from those forward-looking statement. Such risks are fully discussed in the company's filings with the Security 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 over-viewing the financial results that will be discussed on today's conference 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 now like to turn the call over to John Merrill. John, the call is yours.

Thanks, Rob and good afternoon everyone. Today, we reported financial results for the fourth fiscal quarter and full-year fiscal 2020 ending on June 30. Jumping right in, the annual results reflect recurring revenue for our software business grew 13%; recurring revenue for the software business is 98%. Marketplace revenue grew 62%. We grew Tier 2 customers 75% from 60 in 2019 to 105 in 2020. Cash from operations was 4.2 million. We have the strongest balance sheet in the company's history and recognize continued profitability. I am pleased with what we were able to achieve given the circumstances. For the full year, total topline revenue was down 5% due to our planned transition, a one-time software revenue in favor of SaaS or recurring revenue. This was part of our stated strategy, however, as you will see in the fourth quarter, we delivered top and bottom line growth while simultaneously strengthening our balance sheet and generating increasing free cash flow despite significant uncertainty and challenges given the COVID environment. Before we get into the numbers, I believe it is important to reiterate that we have three legs of the stool or products sold [ph]in two different ways. First, we have Software as a Service business or SaaS, which includes our compliance and supply chain products. Historically, those products have been sold as software recurring subscription revenue and approximately 4 million to 6 million in annual non-recurring one-time license and service revenue. As we said in 2019, we made the decision to focus our efforts on transitioning non-recurring software revenue to recurring. As of June 30, 2020, 98% of our software business is now recurring revenue. To put that in perspective, in June 2019 and June 2018, the percentage of our software business that was recurring was 77% and 69% respectively. Transitioning…

Good afternoon, everyone. About a year ago, we announced our strategic decision to focus our future growth in recurring SaaS revenue. It is better for the business as a whole, makes the company easier to understand and frankly easier to forecast yearly changes in revenue and profitability. We believe then, and we believe now that this change will leave to much better our valuations for us and shareholders. The change was focused on reducing the one-time revenue that was then inherent in our software business with both our compliance and our supply chain offerings, while continuing and this is important, while continuing to grow our subscription revenue in those two product groups. So, to reiterate, so I'll give you a way of thinking about this. We have three different product groups sold in two different ways. We have compliance products and supply chain products, which historically had a mix of subscription and one-time revenue that are now sold almost exclusively on a subscription basis, and what we call are SaaS or Software business. Second, we have our marketplace, which is derived from our customers asking us to help them solve a problem for which we are uniquely qualified, locating hard to find suppliers and items by its very nature this leads to transactional revenue. Two years ago, and I think this is an important reference point, we had about 6 million of one-time revenue in our software business. This year we've reduced that to approximately $400,000, a difficult, but very important accomplishment. At the same time, we should have been talking about this more. The underlying recurring software business has been growing substantially with a compounded growth of 11.4% over the last three years and up to 13% last year, we're very, very proud of that. We knew this would…

Thank you. Our first question comes from Elliot Alper from D.A. Davidson.

Great, thank you. So, you've done a great job in maximizing your efforts in recurring revenue. So, congrats on that. That said, how should we think about the next 12 months when it comes to the factors that will drive the non-recurring revenue. And secondly, Amazon reported a 300% increase in online grocery in the June quarter, wondering what the implications are to Park City Group? I just have one follow-up after that. Thank you.

Okay. So, why don't I take them; and John, then if you have something to add chime in. First Amazon, the truth is that Amazon is the enemy of all of our friends. Everyone in the supermarket industry is worried about Amazon, and their primary fear for online activity comes from Amazon. So, the better in a way that Amazon does, the more the people recognize that they cannot continue to do business the way they have, it’s unsettling and frankly stirring the pot in this case is in fact good for us. In terms of, and I think this is a very difficult question -- in terms of how we expect the non-recurring revenue to do in the next year, the truth is we don't know yet. We think of the business and we would encourage you to think this way as now we have a fully recurring software SaaS business that's going to continue to grow, generate very significant underline here GAAP profitability, can you imagine that, GAAP profitability, and an additional business to serve this function to our customers that we call marketplace. To a certain extent, marketplace is derivative of the fact that our compliance work causes our customers to have to rethink suppliers in their supply chain if we help them uncover a supplier who's not doing the kind of job they ought to be from a compliance perspective, they are naturally going to turn to us for finding other vendors. So, we've been doing this as a service. We think it has very interesting upside, but the fact of the matter is, and we're resourcing it more heavily this year. That means we're investing in it, but we think it's got interesting upside. We just don't think that we're in a place yet to forecast it. So, it's fair to say that if shortages continue for some period of time, then we would expect that hard to find things will be in demand by definition and that our marketplace revenue would be up. So, it's a difficult question to answer, I think if I were an investor, I would really mostly be focused on the rest of the business.

Okay, great. And then lastly, just from an operating expense standpoint, how has COVID-19 impacted your expenses? John I think in the past you've talked about how much money it costs to run your business a year? Is that figure higher or lower now because of COVID?

Yeah, Randy, I mean I had said this on the third quarter call. I mean, we had addressed this, when COVID took hold. I have always said, it takes 17 million to run this place, not to get into accounting, but if you look at it from a cash standpoint, forget depreciation, amortization, stock comp amortization, and lease stuff, you know you're north of 40 million. So, we had made, you know as I had said on the last call, our goal is to reduce the operating spend, if you look back, call it June 30, 2021, we will have reduced our cash spend by about $100,000 a month. I've always said 17 million, but that's been including a bunch of accounting stuff, but I mean COVID is not affecting us anymore than what we've already done. We’re focused on recurring revenue that now exceeds our cost of staying in business absent marketplace and then some, and so COVID really isn’t impacting us other than what we've done already to reduce these things. So, as contracts come offline or projects complete, I'm comfortable saying that you can look back June 30, 2021, look back 12 months, you will see it about 1.2 million lower.

Okay, great, thank you both.

Elliot, let me frame it differently from the CEO’s perspective. We've now created structural profitability in the business, and I have to tell you as CEO and certainly as a shareholder, it doesn't get much better than that. In other words, our costs – cash costs have been alive, if you will, are now very substantially lower than our forecastable recurring revenue and that revenue base will grow for the year, not quarter-to-quarter, but for the year, will grow, we think in low-double digits. So, conceptually, in a way, we think this is a really important milestone for us.

Helpful, thank you.

Thank you. Our next question comes from Ananda Baruah from Loop Capital Markets.

Hi, good afternoon guys. Appreciate you guys taking my questions and congrats on a second straight solid quarter.

Thanks Ananda.

Yes, tough environment. Look Randy, John to that end, Randy your point about recurring revenue and growth that you made a couple of times, when do you lap the, sort of revenue headwind from transactional revenue such that all the recurring revenues start to show up as overall revenue growth, you know sort of marketplace notwithstanding?

Got it. That's a terrific question. By next quarter, meaning the quarter ending in December, I believe we're pretty much pure-to-pure, and that will as we begin to expose that, you'll see that our top line grows commensurate with our recurring revenue. So, we are, if we aren't there now we’re damn close.

All right. Awesome. That's helpful. And then you guys, Randy, you mentioned that for fiscal 2021 you think a low teens recurring revenue growth, how good you know, if I go and dust of my notes, I believe that when you guys started this, you actually were thinking and correct me if I'm wrong, but you actually were thinking that, maybe even a high-single digit normalized for return, not for 2021, but kind of the normalized look attractive, looks good, wasn't a bad place to think about. And so the question is, is that accurate in that recurring revenue is actually tracking higher structurally than you guys thought that it would initially? And I'm wondering over time, what's the potential for the growth rate of the recurring revenue, you guys [indiscernible] currently?

Okay. Two more really good questions. Yes. Our belief in terms of topline recurring revenue growth have increased. Frankly, it's because our cross-selling activities are going better than we had seen historically, largely because in fact, we're focused on it. So, let me just give an example. One of our largest and best thought of compliance customers has come to us and said, I've heard about you're out of stock work. I want to do that now and that will be a significant – have a significant impact. In turn, they’ve referenced what we're doing to yet another one of our customers and told them that they should go from doing out of stock work into compliance. So, we're seeing more cross-selling opportunities, Number 1. Number 2, the Tier 2 initiative although slower than we would like, I think all of this have become what I call true believers in terms of what that can do for the business. So, everything inside the business that looks like recurring revenue feels very good to us. And as you certainly know about us, we're operational in nature. What we care about primarily is that customer experience. Remember – and that if you grow at 15% in recurring revenue that means you're probably increasing that customer exposure or number of customers, if you will, by about double that 30% plan. Once you have the 30% growth rate of customers, not revenue, but of customers, it puts an enormous burden on the business to maintain that customer satisfaction and the customer success. So, we feel as if the kind of revenue that we want to see is low double digits, and we can maintain that customer experience at that rate, but you're right, it is higher than we used to think.

Got it. That's really helpful. And how should we think about structural recurring revenue operating margin. Yeah, I know it's software, so it tends to be a little bit higher, but what is the – are you there yet. And if not, sort of what are the signs [indiscernible] getting there and how should we think about what those levels can be over time?

I think John said in his commentary and certainly all of us agree that on the recurring revenue side of the business, which will dominate the business going forward. We would expect that incremental revenue produces about $0.80 of earnings and cash flow under $1 of that revenue. And we think we've matured. We think we’re there. We certainly – John's team has certainly done an extraordinary job of cost control. So, the truth of the matter is, we are feeling very good about our ability to maintain that profitability. It's becoming a competitive advantage. I think I mentioned that a couple of other people that we know that have services somehow like ours or that are in call it [indiscernible] competitive space are in serious financial trouble and that's causing interest in what we do to increase. So strong balance sheet and maintain our profitability, one more time GAAP profitability, not non-GAAP doing that is we think the way forward, we're going to be conservative in our approach and protect that profitability and cash flow for the shareholders.

That's really helpful. One last one from me. How should we think about the strategic priorities. The [indiscernible]?

In terms – the overall priorities of the business are really the same. More of the same. We're growing out in terms of adding additional Tier 1 and Tier 2 hubs that's historically been a major source of growth for us. We're on the same track and perhaps the only thing that's different is that we are more focused than we've historically been on expanding our footprint within any given customer cross selling up selling that is going very, very well. Our theory always was and I want to emphasize it that when you take great care of a customer. When you are successful in terms of the technology and you've serviced them well, so they feel like they are in a relationship with you, they are far more willing to buy other offerings and probably for the first time in the history of the business that is a major focus of ours. And at this point I am – I'm surprised at how well we're doing with that. So that's really the focus. We will add some activity outside the U.S., but that will be incidental. We have begun a couple of other little things that we're doing. As you know, we did some government work. We're switching, how we do that government work, but still doing a little bit, some pilots, and we're going to experiment within idea around how we can monetize some of the data that we have to the benefit of our customers. So, we're always a little experimental. I don't want it to sound like a shiny new object because for us right now, it's blocking and tackling. As I said, we have a pipeline, that's the largest in history of the business.

Great, thanks so much. Appreciate it.

Thanks, Ananda.

Thanks, Ananda.

Thanks. There are no further questions at this time. I would like to turn the floor back over to John Merrill and Randy Fields for closing comments.

Well, I think we feel very good about the year. Please remember, each quarter will not be terrific, the year will be very, very good. That's how we see it from today. Lot’s can happen out there for sure, the uncertainty of the world is extraordinary. I’m not saying anything that everyone doesn't already know, but we feel very good about where we're positioned and we've got ourselves set in a way that will produce a very profitable year. So, we feel good about where we are. John, anything to add to that?

No. I agree with that a 100%. I mean – for me it's recurring revenue, it's cash, it’s growth, it’s maximizing the profitability and keeping an eye on expenses.

That completes today’s call. Thank you for your participation. You may disconnect your lines at this time.