Greetings and welcome to the ReposiTrak Fiscal Third Quarter 2024 Earnings Call. At this time, all lines 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 Stent with FNK IR. Mr. Stanlis, you may begin.

Thank you, operator and good afternoon, everyone. Thank you for joining us today for ReposiTrak's fiscal third 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 closed 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 repositrack.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. The March quarter for fiscal 2024 was yet another period of solid results. Before jumping into the financial results, I believe it is important for shareholders to take a moment and embrace the rear-view mirror for the eyes of management and recognize some significant milestones we have achieved. During the March quarter, we completed onboarding hundreds upon hundreds of suppliers in their respective production facilities during the period. This was no easy task but we have done it before. Those new suppliers in their respective facilities are currently generating 5% of total recurring revenue or $1 million during the fiscal year. The growth in total revenue considers the $1.4 million in high touch low opportunity revenue that we sunsetted over the past 24 months which we previously announced. There is another 5x [ph] facilities that once fully onboarded will add to our previously announced $3 million to $4 million annual recurring revenue already in the queue since May of 2023. Therefore, by June 2024, we anticipate having 6,000 to 10,000 FSMA 204 facilities standing in line to be implemented. There are many nuances to onboarding. We learn more and more every day. Randy will add more color in his commentary. However, the bottom line, we are more confident than ever before that those customers in hand today will double the size of our annual recurring revenue in the next 24 to 36 months. Let's get to the quarterly numbers. Total revenue was up 5% for the March quarter. Recurring revenue was essentially 100% of total revenue, up 6%. Operating expenses increased 12%. Yes, we continue to invest in the ReposiTrak Traceability Network or RTN, adding more sales and implementation personnel to facilitate onboarding of sign-ups. Shareholders should note the prior year third quarter results…

Thanks, John. The traceability initiative is really accelerating. It already far exceeded the expectations that we had, both in terms of the size of the market and the pace at which the market is embracing it. We originally thought that as FDA rule 204 rolled out, it might cover as many as a total of, say, 6,000 to 10,000 suppliers and that we would get many or most of those ultimately into the network over a period of time. We were wrong. We are likely to have nearly 10,000 suppliers in our queue by the end of this fiscal year in June. Incidentally, by queue, we mean suppliers for retailers and wholesalers who are or will be mandated by their customers to use the traceability network. In case you're wondering, the slippage from what we call queue to ultimate revenue is typically not significant. In terms of timing, we originally thought the industry adoption would be tied to the FDA deadline in 2026. Again, we were wrong. Retailers are blown right past that deadline and are driving adoption at an accelerated pace right now, both from the scope of suppliers covered, as well as the deadline for being traceability ready. What happened was that several large retailers and wholesalers concluded that they could not easily run multiple processes in their business for Rule 204 foods versus other kinds of foods from a purely operational perspective. The result is that these large retailers and wholesalers are now requiring all foods not just the narrow list from the FDA must conform to the traceability standards that they've set. That means that market competitive forces are now taking over from FDA mandated forces to drive traceability across the industry. In short, we're not just dealing with the narrow FDA list anymore but all…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Thomas Forte with Maxim Group.

Great. So first, congrats, Randy, John. I have 3 questions. I'll go one at a time. So you gave excellent commentary, both Randy and John on the current state of the business, I was hoping you could quantify in 30 to 60 seconds, your ability to execute from an onboarding standpoint, traceability today versus 6 months ago and then quantify how much faster you'll be 6 months from now?

Tough question.

I was going to say the same thing.

Yes but certainly, an interesting question. Six months ago, we were doing a couple per week. We're now to the point that we can do, say, 50 to 70 per week and in 6 months, we'll be to the point where we think we can do 500 to 1,000 per week. So the cadence is accelerating pretty dramatically. Our automation plan has been converted into execution and the beginning stages of that will be rolled out over the course of the next few months. The queue is much larger, as we said, than we anticipated at this moment in time. A few months ago, we said that at this moment in time, meaning the end of our fiscal year, it might be as many as 2,000 suppliers. At this point, we're pretty comfortable saying it looks like it's going to end north of 10,000 and could be significantly more. So the reality is the marketplace is moving much more quickly than we originally anticipated. And our automation is coming just exactly at the right time. There will be multiple iterations of that automation technology and we want to iterate it at the rate of about one turn per month once it's installed and that will be, as I said, before the end of the fiscal year in June. So it's coming along pretty -- it's coming along really nicely. And remember, at the end of the day, it's not how fast we can do it. It's how well we can do it. And I'm terribly proud of the team because we're handling them at a fabulous rate right now and it will only get better with automation.

All right. So my second question then is, so if you quantified the rate of onboarding 6 months ago, today, 6 months from now, I feel like when you first discussed this opportunity, you were concerned about adoption happening too quickly and your ability to fully capture the opportunity. So I'm wondering with that rapid pace on onboarding, are you now more confident in your ability to capture the whole opportunity?

Well, the real change is not in the rate of adoption. It's really in the scale of adoption and let me explain that. Our original view which turns out to be wrong, was that people would do the Rule 204 idea, meaning 7% to 8% of the products in their stores would be covered under the so-called Rule 204 by the FDA. And if you remember, what we said was we think that's very difficult to execute to sort this from that. This one's Rule 204, that one's not. In other words, operationally, we were convinced that people would find it to be very difficult to execute and that therefore, ultimately and that's where the error occurred ultimately, they would say it's easier just to do everything. It's safer for consumers. And in fact, it's a single process, less expensive to execute. Let's just find a way to do everything. We were stunned when one of the largest retailers in the country, in fact the largest. Last December made the decision to do that. To go against all of the products, not just the FDA list. So what's happened is the size of the prize, if you will, the size of the market increased by 10, 12x, 10x, 12x overnight. Others are now looking at that as a strategy which means that the number of suppliers from the existing customers our hubs, as we call them, that we have to do, potentially goes up by 8x or 10x. So the reality is it wasn't the pace of adoption. It was the scale of adoption which appears to be very substantially changed. Now having said that, adoption is adoption. Here's the difference. And I think it's important to remember it. If the FDA is telling you that you are covered by…

No, yes. Always a good answer. All right. So my next 2 questions are not as exciting and I apologize. But can you give your current thoughts on potentially pursuing either the adjacent market in restaurants or another regulated market in healthcare?

Given how busy we are literally at this moment in time, heads down highly focused on onboarding what we've got in our hands, it would be a distraction to try and do something too adjacent. Now having said that, we're also looking at some relationships that might take us deeper into adjacent spaces where we might, for example, just be, I'm going to call it the back-end system and let others represent us. So we're looking at some strategies and some possible relationships that could take us much more deeply into foodservice than we already are going to be anyway with more of a specialization. In terms of healthcare, it's just too far afield for the moment. I think once we're scaling at the level that I would like to see us at the rate of multiple hundreds of suppliers per week, then we'll have the luxury of focusing on some other opportunities.

Great. Last question and then I always like to ask this one. Can you give your current thoughts on M&A opportunities? I imagine you're getting presented a lot of opportunities, even those that some maybe fire sale prices, what's your current view?

In the last few months, it seems to have slowed a little bit. We're still seeing interesting opportunities being presented to us but nothing that is so exciting that we would be willing to risk both our capital and more importantly, our managerial focus on what we've got. Our plate is really full. We're converting this now to revenue at an increasingly rapid rate. Every month feels faster than the month before. And remember, each one of these suppliers in this queue is worth a couple of thousand dollar -- more than a couple of thousand dollars a year to us. So 10,000 means it's north of a $20 million bogey that we have at the front door wanting to come in. So month by month, we want to chew through that and make the backlog values, if you will, revenue values. So right now, M&A is not the center of our plate, say, the least.

[Operator Instructions] Being no further question. This would conclude our question and answer session. I would like to turn the call back over to Randy Fields for any closing comments.

Thank you all for taking the time this afternoon. We are -- you've probably never heard us as confident and simultaneously excited about the futures we have. A year ago at the same time, it was what I'd call an opportunity. Now it is purely an executional exercise. And in my business lifetime, I could not be any more certain or prouder of our team at the execution aspect of this business. We took compliance from 0 to 100,000 facilities over about 5 years or so and I'm quite confident we're going to do the same again. So thanks for the vote of confidence. We feel really, really good about where we are. Busy as hell, I think, is the best way to put it, a happy busy. So, thanks for spending the time with us and we'll talk to you next quarter.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.