Greetings. Welcome to the ReposiTrak Fiscal Second Quarter 2023 (sic) [2024] 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 the ReposiTrak fiscal second quarter earnings call. Hosting the call today are Randy Fields, ReposiTrak's Chairman and CEO, and John Merrill, ReposiTrak's CFO. Before we begin, I would like to remind everyone that this call could contain forward-looking statements about ReposiTrak 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. ReposiTrak's remarks are subject to risks and uncertainties which actual results may 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. ReposiTrak does not assume any obligation to update information contained in this conference call. Shortly after the market close today, the company issued a press release overviewing the financial results that we will discuss on today’s call. Investors can visit the Investor Relations section of the company’s website at repositrak.com to access the 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. Ther December quarter of fiscal 2024 marks another anniversary of our evolution to a simple, easy to model and highly predictable business. This is what ReposiTrak is today. Looking back on our strategy, our goal was to reduce unpredictable and lumpy revenue in exchange for growth and annual recurring subscription revenue, a reduction in operating expenses, return capital to shareholders, pay off debt, drive cash and make the business easy to model. I am confident as we again embark on execution of this new opportunity, Traceability, our strategy will not change. In two to three years, as we look back, it will be more obvious that it was the right decision. Incremental recurring revenue, a careful focus on expenses, maintain margin, grow net income and grow EPS even faster. As we did some years ago with compliance, our strategy again requires us to scale quickly for the largest opportunity in the company's history, Traceability. We've done it before and we are up to the task to do it again. Before jumping into the quarterly numbers, in my view, it is important to point out to shareholders the path we forged over time and revisit some remarkable achievements we accomplished. Since 2017, we have grown recurring revenue 10% per year on a compounded annual growth basis. Simultaneously, we increased recurring revenue from just 53% of total revenue to roughly 100% at the end of fiscal 2023. Despite overcoming more than $1 million in high touch/low opportunity revenue, the results are quite remarkable. During the same period, we reduced our operating costs by 28% or $5 million, driving an 80 plus percent gross margin and more than a 25% net margin. Since 2017, net income has grown from less than $700,000 to $5.6 million at the…

Thanks, John. The Traceability opportunity is growing very, very quickly, certainly faster than we anticipated. Our decision to clear the decks and focus on what a world with Traceability could mean for us was clearly the right decision. We worked extremely hard over the past year to establish our position in the market, to secure endorsements in collaboration with industry leaders, and capture a foothold with major retailers and distributors. That's working to say the least. We continue to be the only company actually doing traceability, while others are still only talking about it. Meanwhile, the overall opportunity is expanding. Kroger, the largest grocery chain in the US, recently announced to its supply chain that all suppliers, not just those impacted by FSMA Rule 204, but all food suppliers must comply with Kroger's traceability framework – boom. This announcement dramatically changes everything because this will set the food safety bar for other retailers. This is perhaps the most significant change in the history of the retail food industry. And we are seriously thunder stage [ph] for it. We're not doing traceability for Kroger per se, but we're helping Kroger suppliers meet Kroger's requirements. As we have expected, the statement by Kroger demonstrates that large retailers simply aren't going to sort incoming deliveries, trying to figure out which pallet on which truck is impacted by Rule 204 and which ones are not. Labor is one of the biggest costs for these retailers. So adding more people to figure out which box has to be treated in one way and which box has to be treated another way makes no operational nor frankly financial sense. The idea is a nonstarter. Instead, Kroger, and soon others who are convinced, are mandating that their suppliers are going to trace everything, streamlining the process down…

[Operator Instructions]. Our first question is from Thomas Forte, private investor.

Randy and John, congrats on the quarter. I have four questions. I'll mostly go one at a time. I might group the last two. You talked about this at length. I was just hoping you could maybe simplify and clarify. Are you getting faster at onboarding? Will the rate of improvement be linear going forward? Is there something you could do to have a result and a step function improvement in the rate?  Randy Fields: The answer is definitely getting faster, markedly faster and nowhere near where we need to be. So we have probably the best minds in the company focused on automation, education strategies to speed up the process. So we're hoping that a year from now, our onboarding is going at roughly 10x where we are today, maybe even more. As I say, we've done that before. This is a slightly different kind of problem. There's a little bit more data that has to move in while we're doing our compliance work. But we're really, really, really good at this. So I'll be surprised, if a year from now, the onboarding rate isn't up by at least a factor of 10 from where we are today.

On the efforts to upgrade the customer set, is that a permanent initiative? Or is there a definitive timeframe where you go through the process and you're done? In which case, how far along are you?  Randy Fields: Well, from where we originally set out about two years ago, in terms of winnowing out high touch, low margin, not much upside opportunity, we're pretty much done. It will have a significant impact, perhaps another few percent. But given the acceleration that we're seeing, candidly, in our work around the issue of traceability, it will not have the kind of impact that one would be concerned about. So, as contracts come up that we just don't think have the opportunity, we'll probably continue to winnow those out, but it will not be significant. It's mostly behind us. It's probably 80% behind us now. That's just off the top of my head guess. And it was really strategic. As we saw traceability, if you think about what we did, we saw the opportunity in traceability, we realized that it would become a food centric kind of opportunity for us. So we looked at lots of things that we were doing, not frankly based on food, and that's for the most part what we've eliminated. So it was a lucky decision, I think it's fair to say, but it's been very impactful. I think we mentioned in one previous conference call that we needed the time to focus people on the opportunity on how to onboard the suppliers. And I think as we mentioned that, we're right in the middle of it now. Had we not done this, I don't think we'd stand a chance of speeding up the way we expect. So it was a was a good call, maybe a lucky call, but certainly a good one.

This one sort of piggybacks on your comments on food, but it also diverges a little. So I'll go two parts. So can you give me your current thoughts on expanding into new or adjacent markets, such as QSRs, so that'd be food related, and then healthcare, not food related, but compliance related?  Randy Fields: I think the first thing to realize is that when we thought about Rule 204, and this was an error we made in looking into the future, Rule 204 for from the FDA covers, call it, 5% to 7% of the food products that go through a supermarket. Keep that number in mind, 5% to 7%. What just happened is, the industry said, we're going to go from 5% to 7% to 100%. So you can work the numbers out, it's between a 15 and 20 time expansion of the size of the opportunity. And frankly, a more difficult part of the opportunity, because most of the participants that are going to have to do traceability had never thought of it, hadn't considered it because they were exempt from the rule, but they were part of it. And now they're part of the competitive aspect of doing traceability. So just in the grocery space, the opportunity is more than one order of magnitude larger than we guessed. That means that our appetite for other vertical markets is shrinking. On the other hand, most of the suppliers that we work with in retail food, if you will, in the grocery space, also do work in each of those other vertical markets. So we may not be end to end in the QSR and other spaces, we will be end to end in grocery, but we may be from end to middle in terms of the other segments of places where food is consumed. So it's not a missed opportunity. It's the one that we're in just grew by 10 times, maybe more. In fact, it's certainly more than 10 times.

I wanted to make this distinct from the last question. And this is more a reflection of the potential companies you'd acquire. And then given the health of the economy, interest rates, and inability to raise capital, et cetera, et cetera. So, lastly, can you give your current thoughts on M&A opportunities?  Randy Fields: Well, I think for us not much has changed. If the right opportunity presents itself, it could be somebody who has what we might be looking for in terms of a customer set in an adjacent space that wouldn't distract our management team significantly. That would be interesting and opportunistic for us. But we're seeing things all the time now around some bozo who has some great idea for traceability, a widget that's connected to the blockchain that attaches to a SpaceX rocket, that kind of stuff that are now running out of money. None of that is of interest to us. So, conceptually, we do have a tiger by the tail. We said something. Maybe it wasn't clear in both John's and Randy's remarks that it is perfectly reasonable in the next two to three years, the top line revenue of the company will double. We will go from being a $20 million a year company to $40 million in two to three years. That's a lot. It requires incredible customer focus. It requires equally a huge amount of automation of what we're doing. So we have plenty on our plate that our best and brightest are literally day by day working on. How do we do this at a much higher level of scale. So it's going to be an exciting time. And hopefully, the investors in the company see what we're doing and feel good about it. It is a huge opportunity, much greater than we expected. Seriously, it's 10x what we would have imagined, at least 10x.

I would like to turn the call back over to Randy for closing comments.

Okay. Well, that's the end of our second quarter call. We appreciate you all taking time to listen to us. If you sense that we've never been quite as excited about what lies ahead and what has to get done, that's a true assessment. The opportunity is enormous. The amount of work that it will take in creativity and innovation on our part is equally enormous. But I wasn't kidding when I said we're up to the task. So thanks for your support, and have a good rest of the afternoon. Thank you.

This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.