Greetings, and welcome to the Park City Group Fiscal Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] And please note that this conference is being recorded. It is now my pleasure to introduce your host, Rob Fink, with FNK IR. Thank you, 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 earnings 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 the 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 are subject to risks and uncertainties, 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, Park City Group issued a press release overviewing the financial result 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 now like to turn the call over to John Merrill. John, the call is yours.

Thanks, Rob. And good afternoon everyone. We are a SaaS company. The success of our transition to a SaaS company is clearly evident in our profitability. We increased our income from operations by 52%, even as our consolidated revenue decreased due to the planned elimination of essentially all non-recurring revenue. This resulted in a significant increase in net income excluding the forgiveness of our PPP loan last year. We are systemically profitable with now 20 plus consecutive quarters of GAAP profitability despite a market cycle, a global pandemic and a looming recession. Our strategy remains very simple, grow recurring revenue, control costs, increase net income, accelerate EPS, buyback shares and drive cash. Recurring revenue grew 6% for the year and 8% for the quarter. We ended the quarter with an exit rate of annual recurring revenue of $19 million. That means signed contracts in hand at June 30, 2022 that are billed monthly multiplied times 12 will generate $19 million in recurring revenue in the subsequent 12 months if we just stand still. Simultaneously, we have controlled costs and increased productivity, reducing our annualized cash spend to approximately $11.8 million, or 66% of our annual recurring revenue. What do I mean by productivity? Instead of using someone else's software, we built our own tools including artificial intelligence capabilities to facilitate these tasks efficiently and tailored for our specific needs. The results expansion of our ability to focus on customers’ reduction in third party software costs and continued improvement in internal productivity. As a result, our business is now quite easy to model. If you take our annual recurring revenue exit rate, call it $19 million and add our target growth rate of 10% to 20%. It is pretty easy to determine our likely revenue in the next 12 months since…

Thanks, John. As John noted, our net income is accelerating and our earnings per share is accelerating even faster. We have built a consistent cash generation machine with now more than 20 consecutive quarters of GAAP profitability. This has been and will continue to be our plan. The progress has created interestingly, some additional value creation opportunities for us as John mentioned, and this is in addition to our largest opportunity to date, traceability, which by the way, is right around the corner. I'm happy with where we are strategically and operationally. However, we have much more to do and much more to deliver. Each part of our core business is growing. In particular, our compliance business is growing. And this is the part of our business that ties perfectly into traceability. Our forecast don't anticipate track and trace revenue until fiscal 2024 due to the fact that there's currently a proposed two year implementation window that the FDA is initially suggested. However, in interest earlier than we expect, to be clear, this is only from early adopters, since frankly, industry remains painfully low. The industry actually doesn't recognize what is coming to this point. And over the next couple of quarters, early adopter revenue is unlikely to move our needle. But the fact that we're seeing potential revenue this soon which is nearly a full year early is certainly encouraging. Traceability has been a long time coming, 11 years in fact, FDA started, stopped and it finally took a lawsuit to push them to accelerate this initiative. But as a result of the lawsuit, the rules will be published in November. We then expect litigation to challenge the requirements, especially the short timelines. But the likely outcome is that ultimately Rule 204 will become effective in phases over the…

[Operator Instructions] And our first question comes from the line of Thomas Forte with DA Davidson.

Great, so Randy and John, congrats on the quarter, I have four questions. I'll go one at a time. Right. So question number one, why is now the right time to initiate a quarterly dividend? And why is a 1% dividend yield the right target? And then if you're right in the traceability catalyst, would you consider a one-time dividend in the future?

John, you want to take that?

Well, like I said, it's part of our capital allocation strategy. 1% is not a meaningful number it was it's more about the different levers. So we're obviously focused on increasing the cash on our balance sheet for our customers. That gives them peace of mind. As far as paying down the debt, we've done that it's just one as Randy puts a particular tool in our toolbox. So our goal is to obviously use all of those levers, M&A may be another one. But that's our focus at this time. Why is this the right time? I think that and I said it before, there's no magic number of what cash we need on the balance sheet for peace of mind. But with $6.1 million in cash from operations and growing and paying down debt, I do believe that this is the right time, in my view, to pull that lever for cash dividend. As far as a one time in the future, the future is the future. But I think that if you can model out and you can size, I think we've made a very simple that what our cash recurring revenue is and what that contribution is to cash from operations that we would utilize a part of that growth cash in the future to increase that dividend what or when or what else happens down the road may impact that. But with our line of sight, we're very comfortable with where we're at right now.

Great. Thanks John.

Let me add one other point to that from kind of management perspective. We can't precisely answer the question of how we're going to allocate that capital. If the stock price is lower than what we think its intrinsic value is, perhaps a larger share of the money would go to, of our free cash would go to stock buybacks. If the stock is well priced then cash dividend remains that possibility. I think if you look in comparison to other tech companies that 1% yield, is in fact, not too far off what other companies pay when they are paying dividends. So we feel pretty good about where we are.

Great. -- 204, and then this is carefully worded, Randy, I'm trying to trip you up here. All right. So John, essentially, traceability. So beyond traceability, what are the most important challenges your food retailers are facing today? And how's that creating an opportunity or challenges for you, or things I was thinking of are inflation, tight labor market, you may have other things you want to highlight?

Well, because this industry is structurally low margin, that is to say the industry we serve retail food, they are constantly concerned with their costs in terms of purchases and their ability to pass those purchase costs on their consumers. So if anybody in the world is thinking about inflation, I assure you it is the supermarket industry. At the same time, their consumers are trying to figure out how they in turn cope with inflation. That includes trading down, going from branded CPG to private label, et cetera. Almost everything that we do is geared to helping our customers, the retail food sector, cope with whatever the current economic environment is/ regulatory environment. So our compliance business to a great extent is driven increasingly in the future with real tool for by regulatory matters. But it's driven today by litigation, you can barely pick up a newspaper without reading about a food issue of safety. I mean, recently, Wendy's others 10s of millions of people per year get sick from food. Several 1,000 per year actually ultimately die from food related illness. So the truth is, we've got both litigation pressure, regulatory pressure on the compliance side and economic pressures that the industry has to cope with day in and day out, fueling both sides of our business. So we're pretty well positioned. I mean, I think another question that might be a corollary, Tom would be, what if we end up in a deeper recession than most people are calling for? I think that's problematic for the industry. I think if people significantly cut back on their purchases that hurts the industry. But at this point, the beauty of food is even when times are tough people eat. So it's one of the reasons it used to be called a defensive industry that we picked that place to hoist our flag, if you will. And as the regulatory environment changes with Rule 204 over the next several years, it just very logically takes us into the arenas of quick service restaurants, full service restaurants, food service, et cetera, convenience stores. So we're on the March and we feel pretty good about where we're positioned.

Right, excellent. All right. So 204. So can you talk specifically about the competitive threat of doing yourself for traceability? So a lot of times your competitor, is your potential customer and their desire to do something internally? Can you talk about if it's different for traceability for where you're talking about?

Well, that's a really interesting question. To the extent that each retailer develops their own way and method of doing supply chain activity related to traceability, the more difficult the environment for traceability becomes for suppliers. In other words, imagine you are a supplier, you have 50 retail customers, each one of them wants you to do something different, to conform to their traceability environment, and it’s catastrophic. So it's our belief at the end of the day, although some retailers a few might, in fact, do their we call it roll-your-own because you're right, that's our major competitor that for the most part, businesses will be looking for a lower cost solution than doing it themselves that would be us. A more robust way of doing it than doing it themselves. That would be us. And finally, a solution that's endorsed by the industry trade associations, so that they don't look like an outlier. And once again, that would be us. So there will certainly be some who do it. We think in this particular case, there's likely to be fewer rather than more.

I agree. And then last question, and thanks to all my questions. So at a high level, how would a QSR customer be similar and different to a grocer for Park City, including the economics?

Oh, that's a little difficult to answer until we're deeper into the sales cycle. They're different in this respect. Supermarkets tend to have relatively few stores compared to the large QSR guys, but far more suppliers. So just to have a basic supermarket of 50,000 SKUs which is pretty basic, you're typically talking about 1,000 to 1,500 suppliers. If you on the other hand, a large QSR, like Domino's or McDonald's et cetera, you have 1000s and 1000s of stores, but you might only have a couple of 100 suppliers. So you're, they're really the mirror image of each other one has two suppliers, lots of stores, the other has exactly the reverse. What we think therefore is that as we get deeper into the sales cycle with our possible new customers, I think what happens is that we develop a slightly different model, but the goal would be to make it fixed cost for the suppliers so they can afford to do this and easy inexpensive for retailers, QSR, franchisors, et cetera and their franchisees to join the network. So we're trying to take pricing off the table as a point of friction, and I think we're going to get there. I think we'll get there.

And so last, then follow up to that one. So look at it differently. Would you need a new salesforce or is this something your salesforce could do? And is there any reason to believe that your contribution margin on net dollar revenue wouldn't be the same $0.80 as it isn't everything else $0.80 plus.

Yes, the margins will be the same. I don't think we need a different sales organization every year, we're likely to add a little bit to our sales organization that's embedded in what we see going forward. And it will certainly not have a different contribution margin is just all incremental top line and incremental bottom line.

At this point, we have reached the end of the question and answer session. And I'll now turn the call back over to Randy for any closing remarks.

Yes, thanks everybody for listening. And hopefully, if you have additional questions send John or Randy an email and we'll see if we can help get the questions answered. In the meantime, we'll talk to you before too very long as we report our first quarter. Thank you.

Thank you, everyone. This does conclude today's conference. You may now disconnect your lines at this time. Thank you for your participation. And have a great day.