Greetings, and welcome to Park City Group Fiscal Second Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A 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, Jeff Stanlis with FNK IR. Mr. Stanlis, you may begin.

Thank you, operator, and good afternoon, everyone. Thank you for joining us today for Park City Group's fiscal second quarter earning 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 not subject to historical facts. Such forward-looking statements are based on current beliefs and expectations. Park City Group remarks are subject to risks and uncertainties which actual results could differ materially. 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 over viewing the financial results that we will discuss 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 would now like to turn the call over to John Merrill. John, the call is yours.

Thanks, Jeff, and good afternoon, everyone. Our evolution to a SaaS company continues to be evident in the numbers. Our business is now easier than ever before to model, and the results reflect both our ongoing operational and capital allocation strategies. Jumping right into the numbers. Total revenue was up 9%. Recurring revenue increased 10% year-over-year for the December quarter. Total expenses were up 5%. GAAP net income increased 45% to $1.3 million. GAAP net income to common shareholders increased 54% to $1.1 million. Earnings per share increased 62% from $0.04 per share to over $0.06 per share. Year-to-date cash from operations increased 8% to $3.3 million. And we bought back 89,000 common shares at an average share price of $5.05 per share, reduced our bank debt by 83% and have $21.4 million cash in the bank. With the majority of onetime revenue now fully behind us, our comparative results have far less noise than in prior periods. Nonetheless, as I have said it before, there will always be a possibility that a customer will demand to buy our services, meaning license, versus rent, meaning subscription. Fortunately, that likelihood is less now than ever before, given where we are in our SaaS life cycle. Therefore, we expect to continue to deliver year-over-year recurring revenue growth, increased margins, accelerated profitability and significant cash generation for the balance of fiscal 2023. The growth rate, as expected, is accelerating. Simultaneously, as we've said, our profitability and cash flow is and will continue to grow faster than revenue. Consistent with our strategy, our focus on operating leverage, many times making difficult decisions to drive high-margin incremental revenue, while keeping costs in line and driving profitability and cash flow. What do I mean by that? Starting with revenue. We ended the December quarter with an…

As John mentioned, the benefits of our transition to a SaaS company are now evident in the form of significant operating leverage and cash generation. We delivered top line growth, solid in our view with recurring revenue growth exceeding 10% and consolidated revenue growth of 9% even as we deemphasize non-core and our transactional revenue. More importantly our bottom line improvement significantly exceeded our revenue growth and our EPS grew even faster yet exactly our plan. Park City's inherent earnings power is now obvious, sustainable and easy to model. Our accelerated growth rate comes amidst a global economic headwind, I think, it's fair to say. And our customers are not immune to these challenges. Recessionary concerns are causing everyone to question discretionary or even necessary expenditures. So far this has had only a minor effect on us. Importantly, the uptick in our growth rate also does not include any contribution from the traceability, but does include some of the impact of our sunsetting selective engagement through the opportunity is limited. The cost of traceability are in our numbers, but not the revenue. As we've said before, we're strategically deemphasizing non-core revenue meaning smaller higher touch engagements, where the ultimate revenue opportunity is limited or where the margin profile is lower than our food focus. We make these decisions to free up internal resources to prepare for the traceability initiative. And as I've been saying that opportunity is coming fast. In fact, it's coming certainly faster than we expected. We have previously said that we expected litigation to slow the rollout, extending the FDA's target time line in giving the industry time to react. In many ways we actually believe this would be helpful. Why? Because contrary to our original belief interest in adoption from the top down is moving faster…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from the line of Tom Forte with D.A. Davidson. Please go ahead.

Great. So first off, Randy and John great quarter. I have three questions. I'll go one at a time. I know, you discussed it at like great length, but I suspect the contribution margin of even the call it non-food customers is really good given your just margin structure in general. So can you help me understand why it's an or instead of an and from a customer standpoint?

Okay. I'm sorry. I thought, you usually do all three questions, which challenges my memory. So thank you for doing one at the time. There is a business reality for us, which is that at the end of the day, the more intense our customer focus the more we are in touch with what our customers can do by way of extension from where they are the better off the company is. And so it's absolutely true that, there are some pieces of our business that although they are at the moment profitable, don't have from our perspective enough growth. So in a way it's – we think of this as a rowboat, probably a bad metaphor. We think of it as a rowboat, and we have too many passengers on to take care of all of them at the level that we would like. So when we have customers that may pay us – I'm going to make a number up $100 to $150 a month for our services. And they have no growth potential at all. The resource that it takes to handle them the human resource, the focus of our people, the number of humans in our business, the management structure that sits around that, all of that says that we are better off substituting that customer for one that could be spending $500, $700 maybe even as much as $1,000 a month. So, we believe our goal is always as ethically as we can to have a customer set that has not just the best current opportunity, but the best ultimate opportunity. And the fact of the matter is we believe that -- and I think we haven't communicated it well. Traceability is a fundamental transformation of the supply chain. Nothing like this has ever been…

No, if I haven't because I'm turning the second one on its head. All right. So based on your comments John and Randy, it sounds like you're confident you have the headcount and cost structure to support greater than 20% revenue growth. So given everything you just said Randy help me understand why you're confident that you can support greater than 20% revenue growth?

Okay. Well here's -- the answer is in the long run, I don't even know what the hell long run means, but it certainly means more than a few years. In the long run, we're still convinced our growth will fall somewhere in the 10% to 20% range. And as I mentioned recurring revenue has grown in the 10% CAGR over the last five years. So it will be higher than we've done over the last 5. I think we have a few years ahead of us as this kicks in that will be north of 20%. Let me explain why. If we have 10,000 suppliers if you will facilities in our current network people we currently touch that are likely to be covered by Rule 204 that is about $25 million a year of revenue within our existing customer set. There's a time line on this. It has to happen by January of 2026. Okay. So all of those plus others that are not currently customers are going to end up doing something around traceability. Why shouldn't it be us? So in other words when we begin to tack on what we think is I'm going to call it our fair share of this market. And given that they're already customers and given that we have the lowest cost ability to do this it seems like the opportunity could lead to over the next few years -- not 20 years over the next few years a growth rate obviously in excess of that 10% to 20% bracket. So that will take it over the top end for a few years, but I doubt that's to 10-year or 20-year growth rate. It starts to compound into the two bigger numbers. We do have the headcount -- second part of that question. We do have the people on board today to do that. It does require some of the thinning of our non-go-forward customers our non-core stuff to do that. But that puts our most experienced people on the problem which is sure as hell what you want in an operating business. And number two, we will be adding some people. It's just not clear at this point until we've done, five or 10 of these implementations perhaps over the next year, meaning hubs that bring us many spokes. We've got to find out what kind of resource, we have to have available, to help them do this. We just don't know yet. So our plan is to continue to add a few people a year, it's not dozens or hundreds of thousands, but it will be a few people per year and I have to be candid and tell you I suspect it will be more on the implementation side of our business, and on the sales side of our business, not in other areas. I hope that was a good answer, to your question.

All right. So, now I've got two more now. All right. So, with your fortress of -- sorry fortress, of a balance sheet and your free cash flow generation, can you give your current thoughts on M&A? A – Randy Fields: John, do you want to comment on M&A, since you and I talk about it a lot...

I mean look, we are -- first off, we're laser-focused on traceability. So the bolt-ons to compliance and supply chain, we get approached from time to time. But I think right now, our focus on traceability, I think that we have a good source of banking relationship. We have lines of credit. We have cash available. And obviously, we're buying down our shares, so we also have that equity if something should come available. Though right now, from our focus on traceability, if we're sunsetting certain products that give distraction, unless it's something just ultimately compelling, on the acquisition side, it's really not our focus. But look life is the negotiation. We're not going to walk from something that may have been in our view, overly valued for the last number of years 14 15 times, earnings that might or might not occur. But right now, our focus is on traceability. But again, part of our arsenal or quiver, is to have that ability that if an opportunity comes about, I think we have a number of levers that we can access to fund that. I was a little shorter than Randy.

Yes. Yes, a lot shorter. All right. So, last question is -- usually this question is clear to me, so I'm asking, because it's not. So, it isn't clear to me, how the current environment is negatively impacting your sales. For example, you've talked in the time in the past, how you have a distracted customer things of that nature. I understand the macroeconomic environment is still challenging to some degree, you have a fair amount of inflation. But can you explain in simple terms like, how are you currently being negatively impacted sales and profits by the current environment, maybe the answer is not at all. A – Randy Fields: Well, it's somewhere between not at all, and not very much. And really all it seems to be doing when we talk to our prospects, and this will change. I'll come to that in a second, since I'm long-winded. Bring your futon over lay down and I'll keep talking. What I suspect is, today, the talk of recession, the talk of food inflation, is causing people in that industry to be wary of what's happening to their customers. When they become wary, they do tend to just slow down their decision making, and that's good business. It's good practice. Now, having said that, there is a final date around traceability. It was -- it's now January of 2026. Hopefully, they will push that date back. We really genuinely hope, because we don't believe the whole world can get ready for it. But, what that says is, as you get closer to that date and the market begins to wake up. And when we say market, I mean, the participants in the global food supply and that supply chain wake up, there will be a panic. In fact, a very well-known attorney in the food business Shawn Stevens. This is a direct quote. When he was talking about FSMA Rule 204 here's what he said "There's just enough time to panic. People aren't even aware of this yet. And when they wake up the very smallest chains are going to get pushed to the end. The largest chains probably don't have enough time to get this done and it's difficult to execute." So it's got all of the hallmarks of a shark feeding frenzy toward the end. And that's why I said this year we'll see a relatively slow sign-up. The pace will pick up next year. And by 2025 my guess is it's going to be extraordinary. So they'll wake up. Right now they're worried about recession.

All right. Thank you, John, thank you, Randy for taking my questions.

Of course.

Thanks, Tom.

So Randy, maybe any other questions?

I was going to say I can give you the operator to say closing remarks.

Okay. There are no further questions at this time. I would like to turn the floor back over to Randy for closing comments.

Great. Thank you, operator. Thank you, John. Everybody, we appreciate you. Hopefully, you got your questions answered. We're obviously very comfortable where we are, but there is an enormous amount of opportunity in front of us. So we're climbing it and we are geared ready and this will be a pretty exciting adventure. So fasten your seatbelts. Thanks a lot. Talk to you all soon.

Thank you. Bye-bye.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.