Greetings. And welcome to Park City Group Fiscal Second Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. 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, Rob Fink with FNK IR. Mr. Fink, you may begin.

Thank you, Operator. Good afternoon, everyone. Thank you for joining us today for Park City Group’s fiscal second earnings conference call. Hosting the call today are Randy Fields, Park City Group’s Chairman and CEO; 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 subject -- that are not subject to historical facts. Such forward-looking statements are based upon current beliefs and expectations. Park City Group management are subject to risks and uncertainties, which could cause actual results to differ materially from those forward-looking statements. Such risks are fully disclosed in the company’s filings with the Securities and Exchange Commission. The information set forth herein should be considered in light of such risk. 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 issue -- over viewing its 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 December quarter marked the completion of our three-year transition to a SaaS company. Essentially, all of our revenue in the quarter, 99% was sold on a subscription basis. Hence, now all of our revenue is recurring. To put this in perspective, in 2018 only 64% of our revenue was recurring, MarketPlace revenue was volatile and highly unpredictable, and we sold software licenses and other lumpy onetime services. This made it very challenging for us and our investors to predict quarter-on-quarter revenue, and provide any actionable line of sight to our profitability. In 2019, our goal was to convert nonrecurring revenue to SaaS, while simultaneously reducing cash expenses, making our business much easier to forecast and more profitable, we have achieved that. It was a bold goal. It was difficult. It was methodical. We heavily invested in technology and process with a superior team, just 64 people and we utilize our own technology, replacing third-party CRM providers, antiquated contract storage partners, scrutinizing and eliminating waste, and streamline every process from contract to cash. Nonetheless, as I have said before, from time to time, there will always be a customer that insists on buying meaning license versus renting, meaning SaaS subscription. However, that occurrence should be few and far between, we have structured our sales process and pricing models to encourage the sale of SaaS solutions wherever possible. Going forward, our current baseline recurring revenue, together with our stated goal to grow recurring revenue at approximately 10% to 20% annually should serve as a model for predictable topline growth for us and our shareholders. It should be noted that consolidated revenue in the quarter reflects the absence of $1 million in non-recurring MarketPlace revenue in sunsetting vendor-based pricing which accounted for $650,000 annually in revenue…

Thanks, John. As John pointed out, we achieved the non-trivial task of converting basically all of our revenue to recurring revenue. We did this without sacrificing our profitability during that transition. In fact, we’ve meaningfully increased our profitability in our cash generation. We’ve always believed that cash is king. During uncertain times, we think profitability and cash generation are even more important. Recurring revenue grew 7% in the quarter nearly 9% for the first six months of the year and we expect it to grow at least 10% for the full year. Since we made this strategic decision to convert one-time revenue into a recurring revenue model, wherever possible, enabling us to focus on our SaaS revenue, our growth rate for recurring revenue has been around 15%. That’s exactly the midpoint of the range that we’re targeting long-term. It’s important to recognize that our growth rate in the quarter reflects several strategic decisions. In the year ago quarter, one-time, low margin MarketPlace revenue was about a $1 million. So, in fact, you can already see that we’re making progress in our quarterly margins. Secondly, it reflects the strategic decision to sunset certain services that, although, they were substantial in terms of current revenue, had less long-term growth potential, and frankly, were distractions to the more exciting areas of opportunity for us. The impact is about $700,000. This year, about 4% of our total. By exiting this product, we sacrifice a small amount of quarterly revenue, but we free up resources for the much larger opportunity coming down the pike traceability. We have continued preparing for the company’s Track & Trace initiative. It is going to be a significant opportunity for us, uniquely, in my opinion, for us, and the FDA mandates will effectively do much of the marketing for us.…

Thank you. [Operator Instructions] And our first question comes from the line of Tom Forte with D.A. Davidson. Please proceed with your question.

Great. Randy and John, thanks for taking my questions and congrats on the quarter. I’ll go one at a time to make it easy. And so first one is the one I’m consistently asking, Randy and John, can you talk about the state of distraction for your core customer, given the current challenges today? But Randy you talked about inter-quarter promotion that a lot of the food retailers were challenged with Omicron from a labor shortage standpoint, but is that affecting at all your sales cycle?

The answer really was contained in the statement that I made that all of our products now seem to be coming alive. Our pipeline is superb. So those -- the labor issues remain. People still need more staff than they have and that affects the entire supply chain. So, most food retailers still have a lot of focus on supply chain. There’s a tiny bit of evidence that it’s beginning to free up a bit. But fortunately, I think, the worst is behind us.

Second question is, you have talked about the pivot to recurring revenue. From an expense standpoint, if you’re successful in exploiting the opportunity on traceability. How would that affect if at all your operating expenses?

Well, I think, John and I are of the belief that and I think the way he stated it, we -- I certainly agree with that, from here forward. 80% plus of our additional revenue will become cash and income. So we expect that there’s some variable expenses with what we’ll be doing, but not substantial, it will not impact our margins negatively, I would say?

All right. And then third and final, from a capital allocation standpoint, how should we think about buybacks? How should we think about potential M&A? I know you have talked a lot about this year free cash flow to buy back more shares, but are there opportunities to add products to complement what you have today or any other potential uses of capital?

John, you want to take that?

Yeah. I think we’ve said it on previous calls that the cash that we generate, quarterly we would take half of that cash and buyback additional shares of stock, but the rest of it in the bag, that may change from quarter-to-quarter, but looking back that is our goal to take half the cash and buy back stock. As far as the traceability or other initiatives, I don’t see more headcount. As Randy pointed out, it doesn’t require more development. We are already doing traceability. I think last quarter we talked about expenses going down. If you would ask, were they permanent? The answer is yes. And then in my statement, we had always said, it takes $12 million to keep the company alive and that we’ve now reduced that down to $11 million that is permanent. I don’t see that changing going forward with traceability. And as far as M&A, we’re always acquisitive, but with revenue multiples right now, I don’t see anything that makes -- make sense that, we have plenty on our plate, let’s put it that way without M&A.

Excellent. Thanks for taking my questions.

And we have reached the end of the question-and-answer session. I’ll now turn the call back over to Randy for closing remarks.

Okay, Doug. Thank you. We appreciate everybody taking time this afternoon. I think the only question that wasn’t raised is the likelihood of the traceability initiative coming to fruition with a government mandate, and perhaps, we should have explained in our commentary. We see no way that the government can exit the road that it’s on. It’s laid down a proposed rule. We’re sure there’ll be some tweaking around the edges, but traceability is going to happen. We actually think that we’ve developed a way to help the industry use traceability to its economic advantage rather than disadvantage. So we’re finding the market even more receptive to what we’re doing than we originally had guessed. So full speed ahead, and thanks, everybody, for taking time this afternoon. We’ll talk to you all next quarter. Thank you.

And this concludes today’s conference and you may disconnect your line at this time. Thank you for your participation.