Greetings, and welcome to Park City Group Fiscal Fourth 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. [Operator Instructions] 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 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 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 fourth quarter was a strong end to a solid year in every area of the business, compliance, supply chain and traceability. As now a SaaS company, the results of fiscal 2023 should provide a line of sight to fiscal 2024 and beyond. As I’ve said before, our business is easy to model and highly predictable. I will dive into the detailed results in a minute. However, in fiscal 2023, we delivered growth in both total and recurring revenue, essentially flat expenses, growth in profitability, growth in net income, and growth in EPS. We put up some very meaningful results. We generated just under $9 million in cash from operations, paid off over $2.5 million in bank debt, returned $1.4 million to shareholders in the form of a cash common dividend, and brought back $1.3 million in common stock simultaneously strengthening our balance sheet. Meanwhile, we delivered $ 0.20 per share for the year. We achieved this performance while simultaneously navigating a challenging economy of rising interest rates and general economic uncertainty. Meanwhile, we continue to invest in our traceability offering. Randy will speak more to this however, we already do track and trace for inventory and finance at scale for the leaders of the grocery industry. But the new requirements of FSMA 204 are much more in-depth, and in order to be successful, require us to invest further in both technical and customer-facing roles to position Park City Group for the acceleration of FSMA 204 compliance. We have responded accordingly. We added several new members to our commercial, technical, and leadership teams, including industry veterans with relationships and expertise. Be clear, we simply don’t add humans because one is good, so two must be better. It doesn’t work that way. Instead of throwing…

Thanks, John. Over the last several years, we’ve made several key strategic decisions about our course. So far, as you’ve heard from John’s review of the quarterly and full-year metrics, these decisions have demonstrated excellent financial results. Our core business is based on compliance and supply chain management, with additional services like our out-of-stock offering and scan-based trading. Our core business is structurally profitable in generating very significant cash. You heard John describe the 7% growth in recurring revenue, continued expense management, a 40% increase in GAAP profitability, and a 50-plus percent growth in earnings per share. This strategy creates a foundation for the business that we have today, and more importantly, supports our objectives for traceability, the next major growth driver of our business. The compliance model gives us tremendous credibility in the industry. We are by far the largest and best respected supplier, retailer, wholesaler, supply chain network. You see the results in our widespread industry endorsements. As we often repeat on these calls, we are driven by our customers. Not only do we offer technology that works, but we offer an old-fashioned level of human customer service. No bots, ever. Yuck. As we continue to gain recognition as a dominant expert on traceability, we recently announced that we are leading the committee of food industry experts, called the ReposiTrak Traceability Network Advisory Committee, or RENNAC [Ph]. Hard to say, but I think you get the idea. These are very highly respected thought leaders and are working with us to help their particular product categories and the food industry overall to have an interoperable, low-cost food traceability solution for compliance with FSMA Rule 204. That they’ve chosen to work with us on these critical industry issues is, well, humbling to say least. They are the creme de la…

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. So Randy and John, congrats on the quarter and fiscal year. I have a handful of questions. I’m just going to go one at a time. So Randy, you mentioned that the FSMA delay on compliance, that could be helpful you said. Can you expound on that?

Well, yes. The background really is this. Hopefully you can hear me okay. I’m having some phone issues. But the net position that we have is it can’t get done, not by us, but by the industry. As we’ve said before, there’s 1.5 million businesses at a minimum that have to change very fundamental processes in their supply chain to be able to do traceability. There’s now two years and two months left until enforcement begins. It can’t happen. So we’re reasonably confident that the FDA will go whoa, let’s give everybody an extra year. And that would help us because it spreads out the rush. It enables us to deal with customers on a more rational basis. It would be excellent. I’m not positive. We’re not at the FDA. Not positive it’s going to happen. But if it does happen, it’s certainly salutary to our business.

Okay, and the second question is, I think you’ve talked in the past about the opportunity at the restaurant level. Can you talk about that opportunity again and where you are on that?

Yes, the restaurant business is in some ways the opposite of our food business, meaning they have lots of stores, not many suppliers, where food businesses tend to have retail food, tend to have lots of suppliers, not many stores. So we’ve made some really terrific hires and marketing efforts. And I think in the next six months, we’re likely to begin to do a little bit of work and then from a little bit of work to a lot of work, potentially in both restaurants and as well as that, QSR, quick service restaurants.

And then are there opportunities to expand into other fields, especially those where there’s a lot of regulations, oil and gas, pharmaceutical? How should I think about that?

Yes, fundamentally, if you think about what our technology platform can do, it can measure whether or not a business is in conformity with a set of regulations or business rules, etcetera. So what we do could apply for example, to Department of Transportation regulations or EEOC regulations. We have some of our customers now beginning to use us in, well, think of it as sustainability initiatives and whatnot. So all we care about is does someone know the rules? And if they can explain the rules to us, our system can in fact enforce that a supplier or someone in that business is in conformity with that rule set. But beyond that, remember that once traceability becomes the dominant standard here in the U.S. there’s two other things that we think are going to happen. Number one, and by the way, we’re already seeing this. It’s remarkable. Traceability is going to expand from the initial list to likely almost all foods. We’ve already, in fact, this is interesting to note. We’ll talk about it a little bit more later. The very first supplier, literally the number one supplier who signed up for our service, is in the onion business. And onions are not covered by Rule 204. They’re not part of the traceability list. They’re heavily recalled. Don’t eat onions. They’re heavily recalled, but they’re not on the list. And the attitude of this company was they’re going to be on the list. Traceability is better for me and better for my customers. I’m going to do it. So we think traceability will expand anyway within the U.S. but it’s only a matter of time. Remember how much of our food comes from outside the U.S. until this becomes the standard globally. So the opportunities are really very, very large compared to what we see today.

Great. And I have a modeling question for John. So John, you talked about the conversion to recurring revenue and SaaS and things of that nature, but how should we think about your top and bottom line over the next 12 months, especially as you ramp the traceability effort?

Sure. So as you heard, it’s our forecast right now based on what contracts we had at hand June 30 was $20.3 million, so there’s your top line conservative, assuming no growth and modest traceability. Well, obviously that’s not going to happen, so whatever growth factor would come in from there, you heard Randy and I both say it’s about $3 million to $4 million once fully deployed. Well, all of those will not start in July, they’ll be laddered in over the next 12 months, so what that looks like, your guess is as good as mine, but start with a top line of a modest $20.3 million. You heard me say it always takes $12 million to run this place, and then you have another $2 million on top of that of accounting, depreciation, amortization, stock comp. So that pretty much gives you the P&L and you can see what our conversion is from revenue and bottom line into EPS, so I think it’s pretty easy to model at this point with us effectively at 100% recurring revenue. Does that answer your question?

Yes. All right, and then last question for me, and thanks for taking on my question. So you talked about, you gave some high-level comments on where your thoughts are on strategic M&A. Can you talk about returning cash to shareholders, both buyback and the dividend side, and on the dividend side, have you thought about increasing the dividend? I think you have a pretty modest yield right now, but how do you think about potentially raising the dividend over time?

Randy, you can take that one…

Well, let me give you my opinion as CEO. John mentioned it, and I think it’s important to recognize that each year, and even within a year, we’re going to take several looks at where we are from a cash flow perspective. The intention is really still the same as we’ve stated historically. Half of each year’s cash flow will go on the balance sheet to strengthen how we look to our customer set, because our customers are getting bigger, the world is getting weaker, and our customers want to see a strong partner, so we owe that to them. The other half of our cash flow, free cash flow each year, we’re going to decide between one of several possible levers. Are we going to pay an increased cash dividend? That’s certainly under consideration. No decision yet, but it’s under consideration. Are we going to buy back more stock? That’s certainly under consideration. We do that every year so far. And then finally, how much are we going to spend in terms of paying back the preferred? We’ve given ourselves three years to get that done, redeem the preferred, so all of those things are on the table, but definitely an increase in the cash dividend could be in the cards. You agree?

No, I agree. I mean, I think the other element too is M&A. We’ve talked about that. So if there’s something that comes up strategically, but to Randy’s point, we have these levers, so we put up nine million for fiscal 2023, so call it four and a half in the bank, and four and a half going forward, too. We don’t have any bank debt anymore, so logically one could assume that we would, obviously we’re going to buy back the preferred. We have three years to do that. The next logical solution, to your point, as far as a modest yield on the common dividend would be to increase that, but no decision has been made yet.

Great. Thank you, Randy. Thank you, John. Thanks for taking my questions.

You bet. Thanks, Tom.

Our next question comes from the line of Chris [Indiscernible] who’s a private investor. Please proceed with your question.

Hello, good afternoon, and congratulations on the great results.

Thank you.

Thanks, Chris.

I want to ask about the current quarter. Are you going to see a ramp-up of that revenue for the current quarter, or should we just be thinking about the current quarter as maybe like a quarter of that 20 million you guided from current customers?

Well conceptually we’ve said, and we haven’t repeated it as frequently as we should. We’re just not a quarterly company. We don’t think about it in those terms. We think about it on an annual basis, so we are as focused I think as a business can be on onboarding traceability. As we mentioned, we’re the only company actually doing traceability. Everyone else is talking about traceability and issuing press releases. Doing it is very difficult. It is intensive from a development perspective, an implementation perspective, a customer management perspective. In every respect, it is difficult to do. So we are heads down, completely focused on how we do this number one right and we are doing that. Two, how we do it more and more efficiently. We’re focused on that. We’re making changes literally every week to our internal processes and technology to make it easier and faster. And we have to keep our heads down doing that. So, what happens as we now are onboarding people who are actually paying us is that there will be a ramp in terms of how we go from zero to several millions a year over the next year, 18 months. It won’t be exactly equal. We just don’t know the rate at which we can bring the paying customers into the system. So, the answer is the way our numbers should run, Q1 is always the lowest of the year, Q4 is always the highest because of the growth of the onboarding, if you will, in terms of traceability. So, it will continue to increase throughout the year and hopefully for the next several years on that same basis. Hopefully, that answered your question.

Oh yes, definitely. So about your traceability customers, how do they decide who to go in first? I mean, the deadline is 26. Obviously not everybody wants to be right before the deadline, but for whom is it more important to get it done now? And are you guys serving them on a first-come [Ph] person basis or are you prioritizing?

That is a fabulous, fabulous question. It’s one we think about a lot. Remember, we’ve been in the compliance business for a number of years. So, the truth is we’ve developed really, really good relationships with our customers. We’ve been talking to our customers for several years about this traceability requirement, literally years. So a number of them, in thinking about their own business, came to grips with the fact that doing a full implementation of traceability is anywhere from one to two years of work. So, several of them simply, in conjunction with us, took a look at the calendar and said they don’t want to be done in January of 2026. They want to be done ahead of that so that any issues in terms of process and procedure on their part could be worked out. So, I would argue they’re sort of, let’s call them conservative, knowing that things in retail take a while. They are all large systems, meaning one of them owns several hundred stores. Actually, they’re all between two and four hundred stores that they own. One of them is a wholesaler with two thousand stores for which it’s a wholesaler. Another one has, I think, eight hundred stores that it services. When you’re at that scale, nothing goes fast, and that’s how they think. So I think their decision to get started was really based on, one, how long might it take? And since nobody’s done it before, no one has done it before, end to end, across thousands of items, thousands of items, and many, many stores and distribution centers and all of that complexity. Why not allow yourself plenty of time? So, I think that’s why they made the decision to get started, and it’s also why we’re completely convinced that…

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

Thank you all. Appreciate you taking time this afternoon. You know what to do if you have questions, contact John or Randy and we’ll try and help. Thanks a lot.

Thanks everyone. Have a great day.

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