Filing summary
Entity and period: This is Park City Group, Inc.’s Form 10-K, filed September 13, 2018, for the fiscal year ended June 30, 2018—not a standalone ReposiTrak filing or a fiscal 2017 Q4 report. Park City Group is the parent of ReposiTrak, its SaaS supply-chain platform subsidiary. Comparisons below are with the fiscal year ended June 30, 2017.
Business context
The company sells cloud-based supplier discovery and B2B commerce, supplier compliance and food-safety, and supply-chain management solutions. Its “hub and spoke” model typically serves retailers and wholesalers that require their suppliers to use the platform. Most revenue comes from recurring subscriptions; MarketPlace revenue is transaction-based. Target Corporation represented approximately 13% of fiscal 2018 revenue.
Financial performance and position
| Metric | FY2018 | FY2017 | Change / context |
|---|---|---|---|
| Revenue | $22.04 million | $18.94 million | Up 16%; growth across services, including MarketPlace; professional-services revenue declined. |
| Gross profit / margin | $15.45 million / 70.1% | $13.62 million / 71.9% | Margin decreased as service and product-support costs grew faster than revenue. |
| Operating income / margin | $3.52 million / 16.0% | $3.90 million / 20.6% | Income declined despite revenue growth, as operating expenses increased. |
| Net income | $3.41 million | $3.78 million | Down about 10%. |
| Net income attributable to common shareholders | $2.84 million | $2.99 million | Basic and diluted EPS were $0.14, versus $0.15. |
| Cash from operating activities | $2.18 million | $2.26 million | Down $78,000; receivables growth absorbed cash. |
| Cash and cash equivalents | $14.89 million | $14.05 million | Up $838,000. |
| Working capital | $15.74 million | $10.54 million | Up $5.21 million; current ratio was approximately 2.97 versus 2.29. |
| Debt | $5.01 million | $5.17 million | At June 30, 2018: $3.23 million on a line of credit and $1.78 million of notes payable. |
Cost of services and product support increased 24% to $6.59 million, or 30% of revenue, from 28%. Sales and marketing rose 26% to $6.40 million; general and administrative expense rose 18% to $4.89 million. The filing discusses Adjusted EBITDA and non-GAAP EPS but the provided filing text does not provide clear values for those measures.
Material changes and unusual items
- The company reported 16% revenue growth, supported in part by MarketPlace transactions and increased subscription and license revenue, while operating income and net income declined.
- Accounts receivable increased to $7.72 million from $4.01 million. The company cited receivables growth as a significant use of operating cash; one customer accounted for $1.29 million of receivables at year-end.
- The company paid approximately $1.00 million to redeem 93,457 Series B-1 preferred shares. It also paid $782,123 of dividends, primarily on preferred stock. Preferred dividends accrued were $573,348, down from $790,811.
- Common shares outstanding increased to 19.77 million from 19.42 million. The company reported $4.93 million of unrecognized stock-based compensation expense, expected to be recognized over a weighted-average 4.2 years.
Outlook, risks and contingencies
Management expected revenue to continue increasing, principally through new customers—especially for MarketPlace—and cross-selling to existing customers. It expected service and product-support costs and sales and marketing expense to rise in absolute dollars; new services could pressure gross margins. Management stated that cash, short-term investments and operating cash flow were expected to fund operations and debt obligations for at least 12 months. This is management’s expectation, not a guarantee.
- Key risks include customer renewals and adoption, competition from larger vendors, new-product execution, service reliability, cybersecurity and data-center interruptions, and potential product or supply-chain litigation.
- Customer concentration is notable: Target was approximately 13% of revenue. The filing also reports one customer above 10% of receivables.
- The company cited dependence on founder and CEO Randall K. Fields; officers and directors controlled approximately 33% of common stock, with Mr. Fields individually controlling approximately 26%.
- The $3.23 million bank line of credit was scheduled to mature December 31, 2018, with a $5.00 million borrowing limit. Notes payable totaled $1.78 million.
- Net operating loss carryforwards were approximately $121.8 million; a significant portion was expected to begin expiring in 2019, and use may be limited. A full valuation allowance offset the reported deferred tax assets.
- No pending or threatened material legal proceedings were reported. The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- Whether MarketPlace growth and recurring subscription growth continued after fiscal 2018, and how much revenue depends on the largest customers.
- Receivables aging, collections after year-end, and the reason for the substantial year-over-year increase in receivables.
- Repayment or refinancing of the line of credit ahead of its December 2018 maturity, plus subsequent debt balances and borrowing terms.
- Actual gross-margin and profitability trends as the company expands MarketPlace and integrates its platform.
- Preferred-stock dividend and redemption terms, remaining preferred shares, and potential dilution from warrants, restricted stock units, and other share issuances.
- The eventual financial-statement impact of adopting the revenue-recognition and lease-accounting standards discussed in the filing.