Business context and reporting period
Entity and period: The supplied filing is Park City Group, Inc.’s Form 10-K for the fiscal year ended June 30, 2016—not a standalone ReposiTrak, Inc. filing or a 2015 fourth-quarter report. ReposiTrak is a wholly owned subsidiary, and results are consolidated.
Park City Group sells cloud-based supply-chain and commerce software and services, primarily to food retailers, suppliers, manufacturers and distributors. ReposiTrak provides food-safety and supply-chain compliance applications. Revenue is primarily recurring subscription revenue.
Financial performance and position
| Metric | FY2016 | FY2015 |
|---|---|---|
| Revenue | $14.01 million | $13.65 million |
| Operating income (loss) | $687,441 | ($4.09 million) |
| Net income (loss) | $666,503 | ($3.85 million) |
| Net cash from operating activities | $503,223 | $1.71 million |
| Cash and cash equivalents, at year-end | $11.44 million | $11.33 million |
| Working capital, at year-end | $7.85 million | $5.03 million |
| Total debt, including line of credit | $3.23 million | $3.08 million |
Revenue grew 3%. Cost of revenue and product support was $4.28 million, or 31% of revenue, versus 39% in FY2015; the resulting gross margin was approximately 69% (derived). Operating margin was approximately 4.9% (derived). Although the company reported GAAP net income of $666,503, preferred dividends of $729,288 resulted in a $62,785 net loss applicable to common shareholders. Adjusted EBITDA, a non-GAAP measure, was $2.27 million versus $1.12 million.
Operating cash flow fell despite the return to net income, principally reflecting a $1.98 million increase in trade receivables. Investing activities used $365,641; financing activities used $19,766. Year-end current assets were $15.38 million and current liabilities were $7.54 million.
Material changes versus the prior comparable period
- Operating results improved substantially from FY2015’s loss, while revenue increased modestly. Lower service and support, sales and marketing, and general and administrative expenses contributed to the improvement. FY2015 also included a $1.50 million non-cash impairment charge.
- Comparability is affected by the June 30, 2015 acquisition of ReposiTrak: FY2016 includes its full year of consolidated results, while FY2015 included it only from the acquisition date. Prior intercompany subscription and management fees were eliminated upon consolidation. ReposiTrak generated approximately $2.2 million of FY2016 revenue, about 15% of the total.
- Accounts receivable increased to $3.55 million from $1.64 million; management cited extended payment terms and deals closed late in FY2016. Deferred revenue rose to $2.72 million from $2.33 million.
Outlook, risks and unusual items
Management expects revenue to increase, primarily from growth in ReposiTrak customers and, secondarily, from connecting more suppliers to existing retail and distributor customers. The company began combining its legacy supply-chain and ReposiTrak businesses, reorganizing sales and marketing and emphasizing cross-selling. Management expects several operating expense categories to rise in absolute dollars but decline as a proportion of revenue. No quantified earnings or revenue guidance is provided.
Management said cash resources and projected operating cash flow should fund operations and debt obligations for at least 12 months, and intends to reduce debt. The $2.50 million bank line of credit was due to mature December 27, 2016; investors should verify its repayment, renewal or refinancing. Other risks include uncertain ReposiTrak adoption and subscription renewals, competition, service interruptions and cybersecurity, product performance and potential food-recall-related litigation, and dependence on key personnel. The company reported no pending or threatened material legal proceedings and no off-balance-sheet arrangements reasonably likely to materially affect its financial condition.
Preferred stock carries dividends at 7% if paid in cash or 9% if paid in kind; FY2016 accrued dividends were $729,288, with $660,130 paid in additional preferred shares. Substantial goodwill of $20.88 million remains on the balance sheet. Management and the auditor reported effective internal control over financial reporting; the financial statement audit opinion was unqualified.
Important facts for investors to verify
- Confirm the intended issuer and period: this is Park City Group’s FY2016 consolidated 10-K, not a ReposiTrak standalone filing or a 2015 Q4 filing.
- Assess whether reported profitability is sustainable, including the distinction between $666,503 GAAP net income and the $62,785 loss applicable to common shareholders after preferred dividends.
- Track receivables, collections and operating cash flow, which declined to $503,223 as receivables rose materially.
- Verify the status and terms of the $2.50 million credit line that matured in December 2016, and the company’s subsequent debt reduction or refinancing.
- Monitor ReposiTrak customer growth, revenue contribution and cross-selling progress, while accounting for the acquisition-related comparability issue.
- Review preferred-stock dividends, potential dilution and the recoverability of goodwill and acquired customer relationships.