Filing summary
Entity and period: The supplied filing is Park City Group, Inc.’s unaudited Form 10-Q for the quarter and nine months ended March 31, 2016 (fiscal 2016 third quarter), not a standalone ReposiTrak, Inc. filing. ReposiTrak is identified as a wholly owned subsidiary, acquired June 30, 2015; results are consolidated.
Business context
Park City Group provides supply-chain software and related services, including ReposiTrak food-safety, compliance, tracking, and traceability applications. Management says subscriptions may be required by retail or wholesale “hubs” for their suppliers.
Financial performance
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | 2016: $3.58 million; 2015: $3.39 million, up 6% | 2016: $10.22 million; 2015: $10.20 million, essentially flat |
| Operating income (loss) | 2016: $333,000; 2015: $(619,000) | 2016: $185,000; 2015: $(1.64) million |
| Net income (loss) | 2016: $295,000; 2015: $(550,000) | 2016: $169,000; 2015: $(1.47) million |
| Net income (loss) applicable to common shareholders | 2016: $118,000; 2015: $(2.83) million | 2016: $(378,000); 2015: $(4.05) million |
| Basic and diluted EPS | 2016: $0.01; 2015: $(0.16) | 2016: $(0.02); 2015: $(0.24) |
For the quarter, cost of services and product support was 29% of revenue versus 37% a year earlier; operating margin was approximately 9%. For the nine months, cost of services was 32% of revenue versus 39%, and operating margin was approximately 2%. Preferred dividends reduced earnings attributable to common shareholders; the 2015 comparison also included a $2.14 million Series B restructuring charge.
Cash flow, liquidity, and debt
- Nine-month operating cash flow was $202,000, down from $509,000. Investing activities used $640,000; financing activities provided $445,000. Cash increased by $7,000 during the nine months.
- Cash at March 31, 2016 was $11.33 million, compared with $3.37 million at March 31, 2015. Management attributes most of the year-over-year increase to approximately $6.7 million of net proceeds from an April 2015 registered direct offering.
- Working capital was $7.14 million, up from $5.03 million at June 30, 2015; current assets were $14.58 million and current liabilities $7.44 million.
- Total debt was approximately $3.30 million: a $2.50 million line of credit and notes payable. The filing reports approximately 82% of debt at variable rates and 18% at fixed rates.
- Management believes cash, short-term investments, and operating cash generation will fund operations and investment needs for at least 12 months, and intends to reduce indebtedness. The filing also says there are no material off-balance-sheet arrangements.
Changes, outlook, and risks
- Quarterly revenue growth reflected supply-chain subscriptions and new ReposiTrak supplier connections; management says these gains were partly offset by the elimination of ReposiTrak intercompany subscription and management fees after acquisition. Nine-month revenue was nearly unchanged year over year.
- Operating expenses declined year over year in both reported periods. Management cites lower employee-related, marketing, and administrative costs; software development costs were also capitalized in fiscal 2016.
- Management expects revenue to increase as new supplier connections and supply-chain subscriptions contribute. No quantified revenue or earnings guidance is provided.
- Preferred dividends accrued were $547,000 for the nine months. The company elected to pay dividends in kind for recent quarters; preferred dividends and related share issuance dilute common shareholders.
- Risks highlighted include uncertain adoption and returns from the ReposiTrak acquisition, subscription retention and customer growth, competition and technology changes, service interruptions and cybersecurity breaches, and the possibility of future losses or financing needs. The company also cites significant influence by executives and directors over shareholder matters.
- A former employee’s breach-of-employment-agreement case is pending in Utah. The company says it is defending the claim and considers it without merit and any potential amount immaterial.
- The CEO controls Fields Management, which provided executive services under a related-party agreement; amounts payable to it were $32,253 at March 31, 2016. Disclosure controls were reported effective, with no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the reporting entity and period: this is Park City Group’s consolidated Q3 fiscal 2016 filing, rather than a ReposiTrak standalone filing or a 2015 Q3 report.
- Assess whether supplier connections and subscription growth translate into sustained revenue growth and operating cash generation.
- Review the distinction between consolidated net income and losses applicable to common shareholders, including preferred dividends and potential dilution.
- Verify debt terms, especially variable-rate exposure, and the assumptions supporting management’s 12-month liquidity assessment.
- Track integration and impairment risks related to the ReposiTrak acquisition, including the substantial goodwill balance of $20.88 million.