Greetings, and welcome to the ReposiTrak Fiscal Third Quarter 2025 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's 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 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 or statements that are not subject to historical facts, such forward-looking statements are based upon current beliefs and expectations. ReposiTrak’s remarks are subject to risks and uncertainties and 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 repositrak.com to access this press release. With all that said, would now like to turn the call over to John Merrill. John, the call is yours.

Thanks Jeff, and good afternoon, everyone. For those of you who know me or have listened to our conference calls, have heard me say the proof is in the numbers. That is especially true this quarter. We demonstrated during the quarter that we have and will continue to execute against our stated strategy to grow annual revenue at a double-digit pace, somewhere between 10 to 20% and grow profitability even faster. This allows us to generate more cash and return more capital to shareholders. The hard work of the past two years to position ReposiTrak as the go-to source to address the track and trace opportunity while simultaneously growing all lines of business has not been easy to say the least. And by no means we are claiming mission accomplished. We have plenty more work to do. Remember, we had to make many tough decisions along the way in order to efficiently allocate resources to grow our network. Some of those decisions were not popular with investors like sunsetting products and services and walking away from high touch, low opportunity revenue to make room for growth. However, the proof is in the numbers and the results we are reporting for the quarter and year-to-date are reflected in growth in top line and bottom line and the KPIs in between. Previously in the second fiscal quarter, we pointed out that our deferred revenue has increased 70% to $4.2 million. As most of you know, deferred revenue is an indicator of future revenue yet to be recognized. Our contracted revenue, and hence deferred revenue, is comprised of all of our solutions, not just traceability. The services are provided in accordance with the contract that earned revenue will be layered in over the subsequent 12 months. As you can see by our revenue…

Thanks, John. Traceability is continuing to unfold as we expected in terms of timing and process. As we've said, however, the scale of the long-term opportunities proving to be far larger than we originally expected. From the very beginning, we've been clear that the FDA's deadline for compliance enforcement was too aggressive and the industry required more time, while large retailers were positioned to comply on time. The majority of smaller distributors and producers needed more time to fully understand the requirements, assembled the data, ensure the accuracy of that data, blah, blah, blah, and align the processes. Thankfully, the FDA extended the enforcement deadline by 30 months, which will give us the time to make sure that the onboarding that's needed progresses smoothly. The data's accurate. The systems work as everybody hoped for. This extension is exactly what we were hoping for. Importantly, while the enforcement deadline was extended, the law has not changed, and despite the FDA's decision, the pace of adoption has remained the same. It's a market competition issue, not a regulatory deadline that's driving adoption. Market forces have taken over. In other words, what I mean by this is that leading retailers Kroger, Albertsons, Walmart, Target, and others, have made food safety a business priority. They're investing in all food traceability, not just to comply with the FISMA 204 regulations, but because it protects their brand and frankly, it strengthens their operations. Once they've made this commitment, the rest of the industry is now following. The result is that suppliers who work with these retailers need to be traceability capable, and we're solving that need for these suppliers. Initially, we believed that the smallest ingredient suppliers would not be included in the initiative, but over the last few months, our inbound inquiries have shifted from…

[Operator Instructions] Our first question comes from Thomas Forte with Maxim Group.

Randy and John, congrats on the quarter. I have a number of questions and then Randy, if I don't like your answer, I will ask the question again differently. So the first question I had was, Randy, can you talk about the impact of tariffs on your business?

Well, the only effect we think that tariffs have had are having and will have going into the future is the uncertainty that it introduces. So when you have a business like the supermarket or food business, uncertainty causes people to think very deeply about what they're doing. So to a certain extent it slows things down. We haven't seen that in our business. It's obviously accelerating, but it's reasonable to assume that tariffs are just one more hurdle. Nothing like the pandemic, but certainly one more hurdle for the food industry to have to overcome. So it's something, but it's not a big something. How's that?

Alright, so then -- that's pretty good. I want to -- alright, so there isn't a situation where in a low margin industry, like the food retail sector where you have something like tariffs that puts incremental cost pressure and then makes it more difficult, like lengthens your sales cycle or in any way has a negative impact in your business in that manner?

No, we don't think so. We certainly don't see it at this point.

So John, 11 minutes of prepared remarks. I feel like that was an all-time high. I know in the prepared remarks, you made a lot of expense related comments. I was hoping you could distill it to how should we think about changes in your cost structure and how your next dollar revenue converts into profitability?

So I mean, we will continue to invest in the awareness. Even though the delay with the FDA, it's no longer, it's still not a regulatory deadline, it's an industry deadline. So we still have to get that awareness to be priority. We still want to make, because obviously our goal is to get, not a forecast to get thousands upon thousands of onboard. So we can't do that necessarily with humans. We want to invest in automation. So we've done that. So our goal is to flatten that over time as the awareness and the onboarding comes in. But as far as the variable expenses, you're only talking about commission and those direct costs for increases in revenue. So I don't believe our cost structure will change significantly with automation. We've done a lot with only 67 employees, so that'll only get better. I don't see the staff getting lower. But if you think about once this call in the next 12 to 20 months, you'll see the expenses for onboarding through automation flatten, the advertising flatten. But again, I've said $12 million to run this place. So the rest of the accounting stuff, I don't see any vast difference going forward.

Okay. So then can you remind me, you may have said prepared remarks, what's the contribution margin then on the incremental dollar revenue? Is it 80%? I'm trying to remember.

No, right, right now it's $0.50. Our goal is to get it to 70% to 80%. So as what I'm saying is, is that when those expenses flatten you're still going to have commission and whatnot relative to the increase in revenue, but you're not going to have the same marketing spend, you're not going to have the same, you know, and we will have new products and services, but you will not have the same onboarding and development costs in the distant future, call it 12 to 20 months.

Okay. And then can you, if you reiterate or repeat your comments before on your ability to cross-sell products, I think we sometimes we get hyper focused on your ability to convert on the opportunity as it pertains to traceability and things of that nature. But can you talk about the growth of the other initiatives?

You want me to take that Randy, or you want to do it? I mean, look.

Tom didn't give us a name in front. He's supposed to say, Randy, would you answer this question or are you supposed to say John? So Thomas, who would you like to answer that? I'll answer it.

Well, how about both of you, yeah, both. Okay.

So let me go first. So think about it, Tom, because I'll give you a ten second answer and Randy will have more color. Think about it. If I've spent this time turning the aircraft carrier and I'm still committed to doing that, I have all hands on deck and the data is already with this provider and I share the same pain points as my fellow retailers, suppliers, and wholesalers, why would I not expand? Now, Randy will give you his two minute version. Go ahead Randy.

Right. So our business reality is, as I mentioned, and I think we've talked about before, we have one platform from which all technology emanates. And to say that that gives us operating leverage is a grotesque understatement. It's really incredible. I don't know of any other software firm that can say that, that has a suite of applications as broad as ours, but operates from a single platform. So what that means to our customers is everything has the same look and feel. Everything has the same comfort. We're something to our customers because of our customer service. It's quite different than other technology firms. We actually like to talk to our customers. So the result of that is that we have relationships that are long and very, very deep. They like us. And how about this? Our technology works, it actually works. So the result is that as we find our customers experiencing different products that we have from a, tell me about it perspective, meaning they're experiencing a problem. They see a product that we have that may solve that problem, they want to talk to us about it. So we've been modestly successful historically, and I think I've been pretty frank about that. Modestly successful at cross-selling and now we're getting to be really, really good at it. So we've matured. We have people who are more specialists in their product areas, and the result is we're now seeing growth across the business. I think conceptually what that means is that the deeper somebody gets into our ecosystem, it doesn't just produce more revenue for us. It gives us opportunities to find new problems which our customers are experiencing, where we can develop new products. So I mentioned in my previous remarks, we have a number of new products that we'll be bringing to market over the course of the next year or two. There is exciting as what we're already doing. So I think we're really well positioned.

Alright, last one's boring, I apologize. So I guess we'll go, Randy, you talked about it in prepared remarks again, but your capital allocation plans including buying back stock, and then your current thoughts on strategic M&A. It sounds like you have the ability to, as you just pointed out work on new product efforts. So historically, what's been your build versus buy decision making process?

Yes, for the most part because of the platform that we have, it means that acquisitions would look different for us than they might for others. What does that mean? Well, we can build an application typically in a matter of months, seriously, months, not years, based on how robust our current platform is. And as a result, we're not terribly interested in people's technologies that we could acquire. We're much more interested in either their domain knowledge, meaning do they do food service or something where we don't have as much experience or, and do they have customers that we'd like to acquire? So we're pretty picky. We look at stuff does, it's just the nature of this business. People bring us opportunities. We just haven't seen anything yet that's so exciting that we have to go pull the trigger. So we continue along the road of building the platform out adding new capabilities and we think that'll drive our revenue pretty significantly over the next several years.

All right. And then on the buybacks, is there I know you talked about being or when you expect to be done buying back the preferred, is there a situation where you would buy back the basic common and the preferred in the same quarter?

Of course. Again, I mean we have quarterly board meetings and it's not like we're a have a large board and I mean they're phone call away. So when the board determines that the use of half of that cash makes the most sense with a dividend or obviously, we've set a cadence of about $750,000 of preferred per quarter, they could increase that and they could buy back the common. We have no debt, and as Randy pointed out as far as M&A, there's lots on our plate. That would be my short version to you. And our platform is unique and we can build. So we measure all of those things at least quarterly, if not, I don't know, 4x, 5x, 6x a year to see what investment in that capital allocation strategy is palatable for the board at that time.

I think it's something Tom that's not obvious that John, our total of buybacks, et cetera now is redemption. Haven't we given $25 million some number like that?

If you add up the fact of how all the shareholders have benefited through eliminating bank debt, buying back the preferred, buying back the common, increasing the dividend or putting a dividend in and then increasing it twice since then, it's almost $25 million since inception.

Yes. So for a little company that -- and at the moment we still have north of $28 million of cash in the bank, so we're generating lots of cash. We're getting more and more adept at the management of that cash. And I didn't -- I think that the shareholders so far, like the way we're allocating capital, some years it'll be heavier on redemption. Some years we might put more cash on the balance sheet.

[Operator Instructions] And our next question comes from Guy Riegel with Ingalls & Snyder.

Hey, Randy. Hey, John. Got one for John and one for you, Randy. John, when do you all expect to, what year do you expect to become full taxpayers and what rate would you expect to be paying?

Great, great question. We have, you can do the math. It's roughly about $8 million to $9 million left in net operating losses between federal and state. So we're not good at the door right now. I don't have an answer for you on the rate, I'm working with the tax guys right now, but there are also incentives that we can take advantage of both at the state and the federal level for R&D tax credits among lots of different tax credits. I don't have an answer for you. I would be guessing, but it's definitely going to be pretty higher than what we're paying right now. I just don't have a good answer. I would be giving you a guessing, a guessing number, but we can answer that on the next call. I'll have that information.

Great. And then Randy, you mentioned layering in maybe new products over the next couple years on your platform. Can you talk about any of those products?

Well, I think if you appreciate where we are in terms of our customer. In other words, what kinds of problems do we solve? We solve compliance problems. Oh, okay. What else? We solve traceability problems. That's more supply chain. We do ordering out of stock management, scan based trading, et cetera. All of those have adjacencies that would be interesting add-ons. An example we've mentioned this one. If we're doing traceability, shouldn't we be doing recall management? Well, of course. If we're doing what we now see as a way of tracking shipments and whatnot, shouldn't we get deeper into the ordering and forecasting process? Absolutely. Each one of the areas that we service has what we call these adjacencies that give us another opportunity from an economic perspective, because it's the same platform. You have to think, wait a minute. So their development costs will remain essentially fixed. They're not going up and they get incremental revenue. They get to use the same account management staff. So all of these adjacencies and add-ons actually come at an even higher margin than our embedded margins. So, and that's, as you know, that's how we think. It's not just about the revenue side of the equation. It's can we make money? Can we serve a customer, solve a problem for a customer, and simultaneously we can make more money from doing it, that's what's on the list. But there's a pretty interesting series of products that we'll bring to market.

Thank you. And with that, there are no further questions at this time. I'd like to turn the floor back to Randy Fields for closing remarks.

Well, thank you guys. I'm sure you can tell we're not just in good moods, but we feel very, very good about where we are. Hopefully you're all pleased with the results we produced in the next several years. It going to even be more fun than this, so thanks for giving us your time this afternoon. Take care.

Thank you. And with that, this does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time. Have a great day.