Greetings, and welcome to Park City Group Fiscal First Quarter 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] A 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, Mr. Rob Fink, with FNK IR. Mr. Fink you may please begin.

Thank you, operator, and good afternoon, everyone. Thank you for joining us today for Park City Group's First Fiscal Quarter Earnings 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 upon current beliefs and expectations. Park City Group management is subject to risks and uncertainties, which could cause actual results to differ from those forward-looking statements. 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, the company 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. The September quarter progressed as expected. We delivered another reporting period with solid results: 10% increase in recurring revenue, 80% gross margins, 71% increase in net income, doubled EPS, delivered over $1 million in cash. At the same time, we paid off all the company debt, $6 million. Now with 97%, our total revenue recurring, we continue to provide an easy-to-model profit-oriented business with predictable recurring revenue, low fixed cost and growing operating margins. As I have said before, each incremental dollar over our $11 million to $12 million annual fixed cash costs largely falls to the bottom line. In other words, our profitability grows substantially faster than revenue. This is reflected in the first fiscal quarter of 2022 and all of last year. This provides us with strong free cash flow and, in my view, the investor with better line of sight and predictability of results. Highlights for the first quarter ended September 30 are as follows. Total revenue decreased 13% to $4.6 million. This was due to lower Marketplace revenue. Recurring revenue for our SaaS business, which includes compliance and supply chain, was up 10% to $4.4 million. Recurring revenue now represents 97% of total revenue. Marketplace revenue decreased 91% to just over $100,000. Total expenses decreased 26% due to lower Marketplace costs. SG&A expenses decreased 3%. Net income increased 71% to just under $1 million. Cash from operations surpassed $1 million, and we paid off $6 million of debt. Even after paying off the debt, we have $20 million cash in the bank or approximately $1.05 per share. Park City Group is now a SaaS company. The transactional Marketplace revenue, which created volatility in our quarter-to-quarter revenue and a drag on our margins, is now shifting to the same SaaS model.…

Thanks, John. Our momentum continued into fiscal 2022, resulting in our first quarter double-digit recurring revenue growth. It's worth noting, by the way, that recurring revenue is now 97% of our total revenue. That's up significantly from only 64% a few years ago. We've grown recurring revenue by a 15% compounded annual growth rate since we began this strategy to reduce onetime and focus on recurring revenue. During that same period, our GAAP earnings, note GAAP, has had a growth rate of nearly 40% on a compounded annual growth rate basis. It's uncommon, to say the least, during this kind of a business shift. Beyond the recurring revenue growth this quarter, we've made progress on several important initiatives. First, we're preparing the entire company for our Track & Trace solution, both to meet the coming FDA mandates that importantly also to enable us to onboard theoretically, thousands of suppliers quickly and cost effectively after the mandates are finalized. Second, we're continuing to transition our Marketplace offering to a subscription model, more in line with our overall SaaS business plan and with much more appropriate contribution margins. Just like with our transitioning one-time license and services that we've now completed, this Marketplace effort will take some time, but you can already see progress on our quarterly margins. Third, we are continuing those cross-selling activities that we mentioned on many prior calls. We've had a number of successes this quarter, including expansions of our out-of-stock work from an existing compliance customer, expansion of our compliance business, et cetera. All of our activities are now directed toward recurring revenue, cash building per customer revenue expansion. Our aim is to continue to grow our GAAP earnings at a rapid rate. Our core business is exceptionally strong. Our recurring revenue significantly exceeds our cash fixed…

We will now begin the question-and-answer session. [Operator Instructions] It appears our first question today comes from Thomas Forte of D.A. Davidson. Please go ahead.

Great. I have a couple of questions. I think it's the harder questions go by. We'll start the easy one first. So John, did you say that you think you took $1 million of cash costs out of the business? Is that a permanent change or a short-term change?

Permanent change. And yes, $1 million. It's actually over $1 million.

Great. And then, Randy, you've talked about the current stated distraction for your core customer, a food retailer. Can you give us an update on your current thoughts there?

Yes. Not really much change in the last month or so since we did our year-end call. And so long as things stay about like they are, we're comfortable with the current configuration of attention. If things get worse, it will slow us down. If things improve, it could help us a little bit.

Great. And then I wanted to bring up a subject we discussed last quarter, which has only worsened since then. Can you talk about - so historically, food inflation can be good for a food retailer. Do you still feel that way and is it good for you?

The answer is, and I have a mixed message here, but for retailers, inflation is generally good to very good. Therefore, it's good for us. Unfortunately, for people in the kind of economic situation, which they find themselves out of work, et cetera, it's not so good. So sadly, food inflation benefits the industry, participants in the industry, but it makes it worse for society, for sure.

Okay. And then can you repeat why you're not expecting any incremental revenue from traceability in this fiscal year?

Well, a lot of that has to do with our own internal preparedness because there is no aspect of our business that this doesn't touch. We need more certainty around what the possible Rule 204 or that's called regulations are going to look like. We're getting ready to do a number of tests actually, more tests than we had thought about in the beginning. Those tests really now just because of the season, Christmas is coming, for example. We're not going to begin those tests until sometime in December. January, they'll run for a few months then we'll develop a rollout plan, et cetera. So it's really just timing. There might be a slight impact toward the end of this fiscal year, which would be May-June. But our current plan is it will happen after the end of the fiscal 2022 year.

All right. So last question, and it's interrelated. So you've talked about - both Randy and John, you've talked about your ability to essentially sell more services to your existing customer base. Can you provide your updated thoughts there? And then can you also talk about now that you've converted Marketplace to a SaaS offering, your ability to, again, sell it to existing customers? And then are you selling the product on a standalone basis as well? How should I think about that?

But let me go backwards in that. We actually have signed up a couple of people who are not customers for the use of Marketplace. So I think the answer to the question is we think it's a very appealing concept. But as I mentioned, we just can't focus on this year. The ramifications of traceability are so large not just from an economic top line, bottom line perspective but from the various parts of our business that it touches that we can't focus on other things. We've got to keep that in the center of our plate. Secondly, the cross-selling activities are actually doing pretty well. I'm pleased. I've always been kind of - I've been not as excited about how well we're doing the cross-selling as I'd like, but it's definitely getting better. But the bridge to the cross-selling, strangely enough, is likely to be traceability, meaning that, in fact, the traceability as the FDA is looking for it is indeed a combination of our supply chain and our compliance activities. It's almost as if the FDA understood all of our capabilities and said, well, how would we get them to deploy them across their entire customer base. So the way we see this unfolding, we are continuing to up-sell our customers for products that they have. To us, cross-selling means that they go from supply chain to compliance or for compliance to supply chain. That's a cross-sell. The others are just up-sells within those two different suites of applications. And although we continue to do the up-selling, I think the cross-selling will be massively accelerated when traceability becomes the law of the land because it already then takes everyone, those 6,000 or more, into an experience of both our supply chain and our compliance capabilities. This thing really is made for us. That's why we're devoting so much time to it. And in the meantime, we're going to continue to - along our 10% to 20% top line growth and a much more rapid growth of our earnings. So it's an add-on to what we're talking about in terms of acceleration. It's an accelerant. It's not a substitution. So we feel very, very good about where the business is today.

Thank you for taking my questions, Randy and John.

Thanks, Tom.

Thanks, Tom.

At this time, it looks like we have no further questions. I would now like to turn the call back over to Mr. Randy Fields for any closing remarks.

We appreciate everybody taking time today. We hope that we've given you the optimistic sense that that we have about the business. We feel very good about where we are, the customer satisfaction that we see, everything that we would want in terms of enrolling the future in a desirable way is happening for us. So if you have additional questions after the call, reach out to John or to me, and we'll get back to you just as soon as we can. In the meantime, thanks a lot for taking the time.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.